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Surcharge purchaser duty for corporations and trusts
It was previously identified that citizens of New Zealand, Finland, Germany, India, Japan, Norway, South Africa and Switzerland were not subject to surcharge purchaser duty due to international tax treaties.
Changes to federal law means that these citizens may now need to pay surcharge purchaser duty if they enter into an agreement to purchase residential property in NSW on or after 8 April 2024.
We will be providing further information relating to the new legislation as it becomes available and encourage you to monitor the international tax treaties page for updates.
On this page
Corporations and trustees of a trust acquiring residential-related property in NSW must pay surcharge purchaser duty in addition to transfer duty if they are foreign persons.
Corporations
A corporation is considered foreign if an individual not ordinarily resident in Australia, a foreign corporation or a foreign government holds a substantial interest or aggregate substantial interest in the corporation.
A person holds a substantial interest in a corporation if the person, alone or together with one or more associates, holds an interest of at least 20% in the entity.
Two or more persons hold an aggregate substantial interest in a corporation if the persons, alone or together with one or more associates, hold an aggregate interest of at least 40% in the entity.
The trustee of a trust is considered a foreign person if any beneficiary is an individual not ordinarily resident in Australia, a foreign corporation or a foreign government and holds a substantial interest or aggregate substantial interest in the trust.
A person holds a substantial interest in a trust if the person, together with any one or more associates, holds a beneficial interest of at least 20% of the units, income or property of the trust.
Two or more persons hold an aggregate substantial interest in a trust if the persons, alone or together with one or more associates, hold an aggregate interest of at least 40% of the units, income or property of the trust.
A variation to a trust will be subject to duty under the Act if it is a transfer of dutiable property, change in beneficial ownership of dutiable property, a declaration of trust over identified dutiable property or an acknowledgement of trust over identified dutiable property.
The trustee of a discretionary trust is considered a foreign person if any beneficiary is an individual not ordinarily resident in Australia, a foreign corporation or a foreign government.
A trustee will be liable to pay Surcharge Purchaser Duty unless the trust satisfies the following criteria.
1.No beneficiary or potential beneficiary of the trust is a foreign person AND 2.The terms of the trust must not be capable of amendment that would result in a foreign person being a potential beneficiary
If the above criteria are not satisfied, surcharge purchaser duty must be paid, even if you do not intend to distribute income and/or capital to the foreign persons who are beneficiaries of the discretionary trust.
It is irrelevant that a trustee may not exercise discretion to distribute income and/or capital to a foreign person.
For a discretionary trust, each beneficiary or potential beneficiary to whom the trustee has discretion to distribute the income or property is deemed to have the maximum percentage interest in the income or property that the trustee may exercise discretion to distribute to them.
Discretionary trusts may be amended to prevent named and potential discretionary beneficiaries that are foreign persons from receiving distributions as to income and/or capital of the trust.
Should the trust deed contain named beneficiaries who are foreign persons, such beneficiaries must be removed from the trust deed as beneficiaries.
It is not sufficient that named beneficiaries are merely prevented from receiving distributions, such as through a general clause excluding foreign persons from being beneficiaries.
Any amendments to the trust deed must also be irrevocable.
A variation to a trust will be subject to duty under the Act if it is a transfer of dutiable property, change in beneficial ownership of dutiable property, a declaration of trust over identified dutiable property or an acknowledgement of trust over identified dutiable property.