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Commercial Law – Taxing Times for foreign owners

By Natalie Gosper, a Solicitor in our Commercial Law team.

In 2016 and continuing in early 2017, we saw many changes to legislation affecting both vendors and purchasers of property. These changes largely came about due to the new Commonwealth Reporting Requirements (CRR).

The CRR places requirements on States and Territories to report transfers of freehold or leasehold interests in land.  The information collected is used for data matching by the ATO to ensure compliance with Commonwealth tax laws and for the establishment of the National Register of Foreign Ownership of Land Titles.

For NSW property transactions, purchasers comply with the CRR by completing a Purchaser/Transferee Declaration.   The form, required by OSR, must be completed for every property transaction requiring a stamp duty notation (including Transfers of Land and Surrenders or Transfers of Leases).

Some of the recent legislative changes affecting foreign owners include:

NSW Land Tax surcharge

A land tax surcharge of 0.75% (i.e. over and above the usual rate of land tax) applies to foreign owners of residential real estate commencing in the 2017 land tax year.
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Immediate review of discretionary trust deeds required in light of NSW duty and land tax changes

Article by Mimi Su, Senior Associate

Introduction
As a result of the 2016 NSW State Budget the NSW Government has introduced two measures aimed at foreign investors purchasing or holding NSW residential land.

Firstly, a surcharge duty of 4% has been effective from 21 June 2016 and will apply to acquisitions of NSW residential land by foreign persons.  This surcharge is payable in additional to any other stamp duty payable on the transaction.

Additionally there is a 0.75% surcharge land tax that applies to foreign persons who are owners of NSW residential land as at 31 December in each calendar year and to commence from the 2017 land tax year.

Specific issue that it creates for discretionary trusts
The definition of who constitutes a “foreign person” for the purposes of these new measures are quite wide and takes the definition in the Foreign Acquisitions and Takeovers Act 1975.

The test applicable to whether a trust will be a foreign person for the purposes of these measures is to determine whether any foreign beneficiary of the trust holds a ‘substantial interest’ in the trust.
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