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Foreign person duty and land tax surcharges

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Since 1 July 2015, Victoria has had in place the following surcharges:

  • A duty surcharge on the purchase of residential property by a “foreign purchaser” – from 1 July 2016 the surcharge is 7% (ie an effective top duty rate of 12.5%);
  • The duty surcharge (ie. 7%) also applies where a foreign person acquires a non-residential property from 1 July 2015 and later forms the intention to convert the land into residential property; and
  • A land tax surcharge for absentee persons – from 1 January 2017 the surcharge is 1.5%.

Of particular interest is the application of the foreign trust provisions to discretionary trusts. For a detailed article on that issue see here.

New South Wales and Queensland have followed suit

Following Victoria’s lead, New South Wales and Queensland have now introduced the following surcharges:

  • From 21 June 2016, NSW has a 4% duty surcharge on the purchase of residential property by foreign persons and a 0.75% land tax surcharge; and
  • Queensland will, from 1 October 2016, introduce a 3% duty surcharge on the purchase of residential property acquired by foreign persons.

Again, these surcharges apply to discretionary trusts although, unfortunately, each jurisdiction has a different test.

Caution should be exercised when buying residential land in a discretionary trust

Many discretionary trusts will inadvertently be caught by the surcharge regimes. For example, this could be because some distant relative is an object of the trust, even though there is no intention to benefit that foreign person.

Therefore, anybody using a discretionary trust to buy residential property in Victoria, New South Wales or Queensland should carefully review the application of the applicable foreign person surcharge rules and the particular trust deed. In order to ensure the surcharges are not inadvertently triggered, it may be necessary to amend the trust deed.

To discuss this article, or for further Information please contact:

Phil Broderick
Principal
T: 03 9611 0163
M: 0419 512 801
E: pbroderick@sladen.com.au

Carlos Barros
Senior Associate
T: 03 9611 0152
M: 0401 188 629
E: cbarros@sladen.com.au

Melissa Brazzale
Associate
T: 03 9611 0161
E: mbrazzale@sladen.com.au

 

Phil Broderick