• Has your trust acquired residential property since 9 May 2017?

New laws apply to implement a property vacancy fee and annual reporting by foreign owners of Australian residential property. This is part of the Government’s comprehensive housing affordability plan which was announced in the 2017-2018 Federal Budget.

The new rules apply where:

  • Residential property is acquired after 9 May 2017 and
  • The property is acquired by a “foreign person”.

“Foreign person” is widely defined. It includes an individual not ordinarily resident in Australia and includes companies and trusts in which a foreign person holds a 20% or more interest. In particular, 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).

 In summary, the new laws:

  • Require the foreign owner to lodge an annual “vacancy fee return” even if there is no liability for a vacancy fee;
  • Impose a vacancy fee on the foreign owner where the property is not occupied for at least 183 days in the vacancy year; and
  • Impose penalties for failure to submit the vacancy fee return.

If your trust has acquired residential property since 9 May 2017 you need to consider whether there are potential beneficiaries who may be foreign persons. If so, the new rules will apply to you.

Foreign buyers and State-based surcharges

In the recent WA Budget the McGowan Government announced a 7% foreign buyer surcharge on the purchase price of properties to apply from 1 January 2019. This follows NSW, which charges foreign buyers an 8% surcharge, Victoria and South Australia with 7% and Queensland with 3%.

In addition, Victoria charges an annual land tax surcharge on the value of residential and commercial property owned by foreign persons. NSW charges a surcharge on the value of residential property owned by foreign persons.

The State-based surcharges are very broad and will catch discretionary trusts which have beneficiaries that are foreign persons. Furthermore, the onus is on the trustee to notify the State Revenue authorities that the surcharges may apply.

Action

Please contact your Grant Thornton advisor for a deeper discussion if:

  1. Your trust has acquired residential property since 9 May 2017 and your trust has potential beneficiaries which may be foreign persons.
  2. You are contemplating the purchase of a property in your trust and your trust has potential beneficiaries which may be foreign persons.
  3. Your trust owns property in Victoria or NSW and has potential beneficiaries which may be foreign persons.