Foreign purchaser stamp duty surcharge on residential property from 1 January 2019: how does this affect your family trust?

WA is the latest State to levy a surcharge on direct and indirect acquisitions of residential property by foreign purchasers.

This follows new laws to implement a property vacancy fee and annual reporting by foreign owners of Australian residential property acquired after 9 May 2017 - as explored in our client alert earlier this year.

From 1 January 2019, foreign persons acquiring residential property in WA will pay an extra 7% stamp duty surcharge. The surcharge will apply for transactions entered into from 1 January 2019.

Who will the surcharge apply to?

The surcharge will apply to both direct acquisitions and relevant indirect acquisitions of residential property in WA by a foreign person. A relevant indirect interest includes the acquisition of a significant interest (50% or more of an unlisted company or trust or 90% or more in a listed company or trust) in a company or trust which is directly or indirectly entitled to WA landholdings of $2m or more (and some of the landholdings include residential property). The surcharge also applies where the foreign person already has a significant interest in a company or trust and acquires a further interest.

Foreign persons include foreign individuals (individuals who are not Australian citizens, permanent residents or special category visa holders), foreign corporations and foreign trustees.

Residential property is land that is capable or intended to be used solely or dominantly for residential purposes, or vacant land zoned solely for residential purposes. Aged care facilities, retirement villages and commercial residential premises (such as hotels, motels, hostels and boarding houses) are excluded.

How does this affect your family trust?

A discretionary trust will be a ‘foreign trust’ for the purposes of the surcharge where either:

  • the trust is controlled by a foreign person; or
  • one or more foreign persons are default beneficiaries who, together with their associates, hold at least a 50% interest as default beneficiaries in the trust.

The definition of ‘foreign person’ for the purposes of the property vacancy fee and annual reporting requirements is more widely defined. It includes discretionary trusts where at least one of the potential beneficiaries is a foreign person (even if that beneficiary has never received a distribution from the trust).