A reminder that some people need to advise OSR of their ownership status for the recently introduced NSW Land Tax Surcharge. Victoria has similiar provisions Some key factors It also applies to TEMPORARY RESIDENTS who own ANY land. It even applies to a temporary resident and their own home in NSW !! There is NO threshold. You can be exempt from land tax but liable for the land tax threshold. It applies to trusts, companies and all other forms of ownership with complex rules. It does not apply to a SMSF. It does not apply to exempt land (ie farms) or commercial land (ie a factory) Commenced on 31 Deecember 2016. Assessments will issue from March. Warning : Tax deductibility may be lost if the tax is assessed in arrears The key issue to consider is AUSTRALIAN CITIZENSHIP. The surcharge does not apply to citizens even if they are absent. If you arent a citizen and own Australian residential land (vacant or not) then seek guidance on if you are liable. You must register OR update your registration if you or any entity is liable. If you are unsure seek advice or discuss with OSR NSW Land tax surcharge | Office of State Revenue
welcome back paul why would tax deductibility be lost if assessed in arrears ? you could amend the last two years worth of returns when the assessment came in. do you mean if the assessment went back more than 2 years you couldnt amend so you have effectively lost the deduction ?
Yes or even 4 years for some...But the important issue is that land tax arrears are often detected after 2 years. Thats the key issue with failure to register. And as explained in the Rental Guide after 2 years (or 4) the arrears may be a non-deductible as a deductible in available when incurred not whan it is paid - at best a CGT adjustment eroding 50% of the tax deduction. I can see the surcharge being a issue detected on sale in so many cases. Land tax is poorly understood and the surcharge given poor media focus. Took me three weeks to get clarity on how a disc trust will be treated and there is a huge potential liability....Any DT with a POTENTIAL unnamed beneficiary who is not a citizen triggers the surcharge according to OSR. You dont have to distribute to them. And a FTE does not help. I was a bit mocking of this view - Asked if ancestry.com is the OSRs new resource. I reckon 20% of people have non-citizen relatives. The cost to amend this problem for trusts deeds hasnt been identified yet. I havent seen a safe disc trust deed yet. (ie deed clauses for excluded beneficiaries excludes related non-citizens as potential beneficiaries until they are "appointed" by trustee etc).....Love to see the legal response to that one.
I raised the issue of a potential to amend trust deeds to address the NSW and Victorian land tax surcharge position with discretionary trusts and see that has now eventuated. One of Australia's leading deed providers lawyers have developed a discretionary trust deed that excludes specific beneficiaries to cater to the land tax surcharge problem. It can exclude foreign persons as potential beneficiaries which may be ideal for some trusts that intend to acquire property in those states and where there is a concern about possible foreign beneficiaries being counted as a problem. The lawyers also offer to amend existing trusts for this issue. Cost unknown for that service and likely based upon complexity. Can the deed be backdated to the day prior to the taxing date of say 31 December 2016 ? No. Can the deed be used to amend a existing trust with the concern ? Yes they say but refer to the first issue. The amended provisions may only apply from the date of the amendment. Might such an amendment trigger a resettlement - Not unless the trust had a sole beneficiary. That is uncommon for a disc trust. But this issue comes with some caution. Not all trust deeds can be amended to resolve all concerns with these broad land tax surcharge rules. A trust may still - Make a capital distribution to a excluded beneficiary - Loan funds to a excluded beneficiary which OSR may consider is a distribution - Contain a named person in the original deed although amended - A foreign person may still have influence control or involvement in the trust despite being excluded eg a trustee officer, appointor etc Legal advice is a must in this area and such changes should only be made after that advice by experienced practitioners.
I don't think a resettlement would occur for CGT where the trustee had the power to amend and the power to add or exclude beneficiaries. But for stamp duty it is more complex and the laws vary from state to state - i would recommend a private ruling in any state in which the trust owns land. There is a recent case which shows a beneficiary can exclude themselves from a trust and can do so from a distant date in the past and it would be effective from that date. It is a payrole tax case. But a deed cannot be backdated.
