Legal Tip 320: Foreign Persons and Companies Owning Land in NSW

In NSW companies and trustees acquiring land can be up for 8% additional stamp duty and 2% pa. extra land tax if ‘foreign persons’ are shareholders or potential beneficiaries.

This is now relatively well known for discretionary trusts holding land in NSW, but it can trap many with companies as well.


A trust is considered a foreign trust if any potential beneficiary of either income or capital is a foreigner. To avoid this the deed must specifically exclude ‘foreign persons’ (note there is very complex definition of what a foreign person is but generally citizens or permanent residents of Australia will not be foreign persons.

When a company is set up to own land often the shareholder of the company is one or more trustees of a discretionary trust.

Where the shareholder is a ‘foreign trust’ the company will be considered a foreign person and will have the extra stamp duty and land tax apply.


Similar with Unit Trusts where the units are held by a trustee of a discretionary trust.


This will only be the case if foreign discretionary trusts holds more than 20% of the shares in the company or units in the unit trust.


Example

Homer Sets up Homvest Pty Ltd to buy property in NSW. He is the shareholder as the trustee of the Simpson family trust with the trust deed making no exclusion of foreign persons.

The company will be hit with the foreign person surcharge of an extra 8% stamp duty at purchase and an extra 2% land tax each year.



Example 2

Homer as trustee also owns 25% of the units of a Unit Trust with his mate Barney owning the remaining 75%, The unit trust will be hit with the foreign person surcharge of an extra 8% stamp duty at purchase and an extra 2% land tax each year.