Are You Aware of Foreign Landowners’ Duties?

Foreign persons who invest in property in Australia are subject to a range of obligations. It’s important to know what they are and fully understand the implications of them.

Victorian State Revenue Office – Foreign Landowners’ Duties

Foreigners of Australia who invest in residential property or land in Victoria are subject to various state duties, including:

• Foreign purchaser additional duty – 8% on the dutiable value of the property;
• Absentee owner land tax surcharge – 2% annually on the site value of the land for the land tax year ended 31 December 2019 and future years; and
• Vacant residential property tax – 1% of the property’s capital improved value.

Implications for discretionary trusts

A discretionary trust that has any potential foreign beneficiaries entitled to capital distributions will be treated as a foreign purchaser for Foreign Purchaser Additional Duty purposes and an absentee owner for Absentee Owner Land Tax Surcharge purposes.

 Who is a “foreign purchaser” for stamp duty purposes?

A natural person is a “foreign purchaser” if they are not:

• A citizen or permanent resident of Australia
• A New Zealand citizen with a Special Category Visa

For discretionary trusts, a person or member of a class of persons is taken to have a beneficial interest in the maximum percentage of the capital of the trust estate that the trustee of the discretionary trust is empowered to distribute to the person(s). The effect of this is that a discretionary trust that has any potential foreign beneficiaries will generally be a foreign trust for the purposes of the foreign purchaser additional duty provisions.

The Commissioner of State Revenue will adopt a practical approach so that trusts that have foreign beneficiaries who have not and who are, based on available information, unlikely in the future to receive any distributions, will not be considered a “foreign purchaser”.

In adopting a practical approach, the Commissioner will consider the following factors:

• Any intention of the trustee to vest any capital or income in the foreign persons;
• The relationship or connection between the foreign persons and the persons for whom the trust was established; and
• the likelihood of the foreign persons receiving or benefiting from any of the capital or income of the trust, having regard to any historical distribution so income and/or capital.

Who is an “absentee owner” for land tax purposes?

An “absentee owner” can be an absentee individual, an absentee trust or an absentee corporation.

Absentee individuals are natural persons:

• who are not Australian citizens or permanent residents of Australia; and
• do not ordinarily reside in Australia, and
• were either absent from Australia:
  • on 31 December of the year prior to the tax year, or
  • for more than six months in total in the calendar year prior to the tax year.

An absentee trust is a fixed trust, a unit trust or a discretionary trust that has at least one absentee beneficiary. An absentee beneficiary is a beneficiary who is specifically named in the trust deed who may receive income or property and does not have to be a taker in default.

The owner is responsible in advising the SRO of foreign ownership interest in residential property or land and is subject to penalties for non-compliance.

What to do next:

If:

• you have a discretionary / non-fixed trust; and
• it owns residential property or land; and
• any potential beneficiary of the trust is a foreigner

we strongly recommend you consider amending the trust deed to exclude foreigners from being a beneficiary under that trust.

The change to the trust deed will need to be effective on or before 31 December 2019, which is the next land tax assessment date.

Morrows Legal can prepare a change to your trust deed for $770, inclusive of GST. To allow sufficient time to prepare and execute the amendment to your trust deed, we will need to have received instructions before close of business on 12 December 2019.