Current as of: 14 November 2024.
As the end of the year approaches, trustees and their advisors should ensure that they are prepared for the upcoming land tax assessment in New South Wales (NSW) on 31 December. It is critical for those advising trustees to take proactive steps to mitigate risks and maximise tax benefits, particularly in relation to the potential application of foreign person surcharge land tax and the land tax free threshold.
Surcharge Foreign Person Land Tax for Discretionary Trusts
NSW imposes surcharge foreign person land tax on residential property owned by foreign persons at a rate of 5% from the 2025 land tax year onwards. This is in addition to the general land tax rate. Trustees of discretionary trusts will be considered foreign, and liable to pay the surcharge, unless the trust deed irrevocably excludes foreign persons from being beneficiaries.
Advisors should have discretionary trust deeds reviewed and, where necessary, amended to irrevocably exclude foreign persons for the purposes of surcharge foreign person land tax in NSW. This should be done, and submitted to Revenue NSW, prior to the land tax date of 31 December.
Accessing the Land Tax Free Threshold for Trusts
For a trust to access the land tax-free threshold of $1,075,000 (for the 2024 year onwards) in NSW, it needs to be considered a fixed trust for NSW land tax purposes. This involves, amongst other things, ensuring that the trust deed contains the relevant criteria in the legislation. If a trust is not considered fixed in accordance with the legislation, it will be considered a special trust and will not be able to access the land tax-free threshold.
Advisors should work with trustees to review and, where necessary, amend the trust deed to make the trust fixed for NSW land tax purposes if access to the land tax-free threshold is sought. This should be done, and submitted to Revenue NSW, prior to the land tax date of 31 December.
It is important to note that there may be other land tax implications even if the trust is considered fixed for NSW land tax, for example, if there are secondary taxpayers that aren’t fixed for NSW land tax.
Contact us to discuss any of these issues further.
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