Tax Tip 149: NSW Land Tax Trap for Non-Citizens

Discussion in 'Accounting & Tax' started by Terry_w, 16th Jan, 2017.

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  1. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Paul has mention before about the new land tax surchage om residential land for 'foreign persons' - basically someone who is classed as a foreign person will suffer extra land tax payments because
    there is surcharge on top of normal land tax.

    See section 5A(s) Land TaX Act 1956 (NSW) - an extra 0.75%

    Example 1 (from OSR)
    'A' is a foreign person who owns residential land with a total land value of $700,000.

    The land tax payable on $700,000 is $2516.00.

    The surcharge payable at 0.75% of $700,000 is $5250.00.



    NSW Land Tax Trap for foreign players

    Those who hold permanent residence status but not citizenship can fall into a trap for being a ‘foreign person’ if they leave Australia for longer than 200 days or if they had stayed in Australia less thatn 200 days in the previous 12 months



    Example 2


    Deng Da Ping has permanent residence status in Australia, but not citizenship. He buys property in NSW and doesn’t come under the foreign person test so pays no extra tax. A few years later Deng goes out to work on the Spratly Islands for a year. Because he is absent from Australia for more than 200 days he will now fall under the definition of ‘foreign person’ and must pay the surcharge.

    Deng may think he just has to come back early December before the taxing date of New Year’s Eve. But he could still be caught out if he did not spend more than 200 days in Australia during the previous 12 months. This is the case even if Deng moves into his main residence - the surcharge could apply.


    Solution – Deng could become a citizen if he qualifies.
     
  2. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    There are loads of traps.

    ANY discretionary trust for which a AU citizen has control etc and if they or their spouse have ANY foreign relatives may also fail unless there are special clauses inserted into the need may fail. OSR seem to need to an ancestry.com search for all discretionary trusts based on their views that any potential beneficiary may trigger the issue. Many aussie citizens have foreign "relatives"hence a potential trust beneficiary. OSR consider relatives are :
    • the person’s spouse
    • the parent, grandparent, brother, sister, uncle, aunt, nephew, niece, linealdescendent or adopted child of that person, or of that person’s spouse (and the spouse of any of these persons).
    So a foreign grandparent can render a trust liable to the surcharge even if no distribution has ever been made.

    A common issue arises for foreign owners who buy property for their children to reside in while studying here. This will be subject to surcharge and now assist with identification of land tax arrears (since it is not an exempt residence)
     

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