Trust-owned property: Land tax and duty changes

If you own property through a trust or a private company in New South Wales, you need to beware of the Foreign Person Surcharge Duty where there are foreign persons involved, or the potential for them to be involved.

From 1 January 2025, there will be an increase in foreign person surcharge duty rates in NSW.

Who is considered a foreign person?

A foreign person is anyone who is the owner or controller of a trust who is not an Australian citizen or has not lived in Australia for 200 days in the 12 months prior to 31 December each year.

In New South Wales a ‘foreign person’ under the Duties Act 1997 can be an individual, company, trust or a partner in a limited partnership.

Current duty payable by foreign persons

Land tax will be imposed at the surcharge rate of 4%. Purchase of residential land by a foreign person will incur Surcharge Purchaser’s Duty of 8%.

Residential land owned by a trust will incur surcharge land tax unless foreign persons are irrevocably excluded as beneficiaries. This means the trust must not allow the possibility of amendment to include foreign persons.

Residential land under the Duties Act is not limited to a home. It includes strata lots, vacant land zoned for residential use or land upon which a residence is being constructed.

Unless a trust irrevocably excludes ‘foreign persons’ as a beneficiary, the trust will pay Surcharge Purchases’ Duty and Surcharge Land Tax.

Since 24 June 2020, New South Wales Revenue has levied testamentary trusts (created by a will) for Surcharge Land Tax and Surcharge Purchaser Duty as if it is a foreign person, unless they are irrevocably excluded as a beneficiary. It does not matter whether all beneficiaries are Australian citizens.

The Trust must state that it irrevocably excludes all foreign persons.

Effect on existing wills

• Wills with testamentary trusts signed before 31 December 2020, can be amended (if the will allows) to exclude foreign persons.
• Wills signed after 31 December 2020, even if the will allows cannot be amended to exclude foreign persons.

Note: New South Wales Revenue has access to information from across multiple government bodies and is using this to assess surcharge duty for land held by trusts that do not comply.

The change

From 1 January 2025 the Surcharge Purchaser’s Duty has increased from 8% to 9% and Surcharge Land Tax has also increased from 4% to 5%.

These duty charges are a significant impost to owners and a trap to Australian citizens who control trusts and companies where there are foreign person shareholders and potential foreign person beneficiaries.

My recommendation

If you own property under a trust or in a company, contact me or one of the Estate Planning team here at Turnbull Hill Lawyers to review your possible exposure for surcharge duty liability.