Legal Tip 258: New Land Tax Sting for Trusts and Companies owning Land in NSW Under NSW law a ‘foreign person’ will pay more land tax and stamp duty for property located in NSW. The definition of ‘foreign person’ is very complex but basically includes a non-citizen not living in Australia. This would not affect the majority of individuals buying property in NSW. But it could affect the majority of trusts that already own, or a buying property in NSW. This is because the definition of ‘foreign person’ includes a trust in which a ‘foreign person’ can potentially benefit. Example Marge sets up a discretionary trust. The beneficiaries are herself as the primary beneficiary and secondary include relatives on the primary and spouses of those relatives. Marge’s whole family is in Australia. Not one cousin or relative is overseas. But one distant cousin marries an Eskimo who is a ‘foreign person’ so now the whole trust becomes a ‘foreign person’ as the trustee could distribute income and/or capital to the Eskimo. If the trustee of this trust owned property in NSW there would be an extra 2% in land tax each year. Example 2 Marge then sets up a company to buy the next property. The company shares are held by the trustee of the trust described in example 1. This company is now a ‘foreign person’ because the shareholder is a ‘foreign person’. Bugger! But to avoid this it is a simple matter of excluding ‘foreign persons’ as beneficiaries of the trust. However, now it is reported that the laws are in the process of being changed. There is a bill before the NSW parliament which will mean that trust deeds will need to be amened so that a clause excluding ‘foreign persons’ can not later be amended to bring them back in as beneficiaries of the trust. So now foreign persons should be permanently excluded from being beneficiaries of a trust that owns land in NSW and this clause should be unamendable. But note that this is not yet law. If it is passed next year it will be effective from 31 December 2019. You have a choice of waiting and seeing or amending the deeds of trusts before 31 December 2019. If you wait and see and the law is passed you could be charged an extra 2% land tax this New Year’s Eve. I will be doing free trust deed amendments for clients of my company who I set up trusts for – Until 31 Dec 2019. Note that this is only necessary if the trust owns property in NSW. It should not be done where the trust only holds shares – as there is no need and you will be restricting beneficiaries unnecessarily.