Revenue NSW is offering an Amnesty until 31 January 2020 to correct outstanding land tax obligations.
The NSW Government recently announced that it is cracking down on property investors who have either failed to register for, or understated their land tax obligations.
Broadly, land tax is paid where aggregate taxable holdings in New South Wales, excluding your main residence or primary production land, is above a tax free threshold. The tax free threshold is revised each year and for the 2019 tax year, the tax free threshold is $692,000. Land tax is levied in New South Wales on 31 December each year at a rate of $100 plus 1.6% on total land value above the tax free threshold which increases to 2% to the extent total land values exceed a premium land tax threshold (1).
According to Revenue NSW, the first year of review is expected to recover $100m in outstanding land tax liabilities. As a concession, the NSW Government is offering an amnesty for land owners who may have outstanding liabilities. The amnesty offers the following:
- allows landowners to register for land tax without incurring any penalty on top of their existing land tax liability, although you will have to pay the outstanding tax due;
- an amendment period capped to 5 years
Based on discussions Bentleys have had with Revenue NSW, the amnesty will be granted on a discretionary basis but no further details have been provided. In this regard, we suspect that in respect of serious land tax breaches the Commissioner could choose not to apply some or all of the amnesty concessions.
Land owners who are uncertain of their registration status are encouraged to contact Revenue NSW or seek expert advice.
The amnesty will expire on 31 January 2020.
Do you have a discretionary trust? Don’t get caught up in surcharge land tax
Revenue NSW has indicated that it will also focus its attention on reviews of discretionary trusts that have land holdings and potentially impose surcharge land tax where a trust deed allows for distributions to foreign beneficiaries.
By way of background, surcharge land tax applies to foreign persons who are owners of residential land in New South Wales. Where such property is held in a discretionary trust, the trustee may be liable to surcharge land tax if there are any potential beneficiaries that are foreign persons. Where the surcharge land tax applies, an additional 2% is payable on top of any existing land tax liability.
Discretionary trusts can avoid the land tax surcharge by making an amendment to the trust deed to remove foreign beneficiaries. In particular, the Commissioner has stated the following in practice note CPN 004:
To be exempt from the foreign surcharges, amendments made must prevent potential beneficiaries that are foreign persons from receiving distributions as to income and/or capital under the trust. Any amendments made must also be irrevocable.
The Commissioner’s practice note also provided the following examples:
Mr & Mrs Jones (both Australian Citizens) are primary beneficiaries of the Jones Family Trust. Potential beneficiaries include their children, their spouses, grandchildren, aunties & uncles (all Australian citizens), the lineal descendants of the specified beneficiaries and any entities whether formed in Australia or elsewhere such as corporations, charities etc.
The trust has potential existing foreign beneficiaries and in order for the trustee not to be liable for the land tax surcharges, the trust deed will need to be amended.
Mr & Mrs Jones (both Australian Citizens) are beneficiaries of the Jones Family Trust. Potential beneficiaries include their children, their spouses, grandchildren, aunties & uncles (all Australian citizens), the lineal descendants of the specified beneficiaries and any entities whether formed in Australia or elsewhere such as eligible corporations, charities etc. The trust deed also has an excluded class of beneficiaries and this class includes any beneficiary who is a foreign person.
As all foreign persons, entities and charities are excluded, the trustee will not be liable for the land tax surcharges.
Trustees of discretionary trusts which hold, or may acquire NSW residential property should have their trust deeds reviewed by a legal practitioner to remove foreign persons as beneficiaries if they wish to prevent the surcharge land tax from applying.
Bentleys recommends that you check with your legal advisor before 31 December 2019 regarding the form and nature of any amendments required to your trust deed to ensure land tax surcharges do not inadvertently apply for the current year.
Your Bentleys team are experts in helping you manage your tax risk and profile, so contact your Bentleys advisor today to discuss your next steps.
(1) The premium land tax threshold for 2019 is $4,231,000.
Disclaimer – this is a simplified summary and cannot be relied upon as advice for a reader’s existing circumstances or the basis on which to make decisions about any future actions.