RSM Australia

Beware of purchasing Victorian residential land in a trust

Tax Insights

The Victorian Duties Act 2000 imposes a stamp duty surcharge of 8% on the acquisition of Victorian residential property by a foreign purchaser. This surcharge brings the top stamp duty rate to 13.5%.

The breadth of this surcharge and its cost mandates that it be considered in the direct purchase of Victorian land or indirect purchase of land from the acquisition of a company or trust holding more than $1m of Victorian residential land.

A foreign purchaser is defined as: 

  • A foreign natural person; Victorian residential land
  • A foreign corporation – this means a corporation that is incorporated outside of Australia or a corporation that is controlled by a foreign natural person, another foreign corporation or the trustee of a foreign trust; or
  • A foreign trust – this means a trust in which a foreign natural person, a foreign corporation or another foreign trust has a substantial interest being an interest of more than 50% in the capital of the trust.  A discretionary trust in which the trustee has a right to distribute the capital to a foreign person will be a foreign trust.

The Victorian State Revenue Office (SRO) has applied a ‘practical approach’ with respect to the catergorisation of family or discretionary trusts as foreign trusts for duty surcharge purposes. Trusts that have foreign beneficiaries who have not and who are, based on available information, unlikely in the future to receive any distributions, have not been considered foreign trusts.

From 1 March 2020, the Victorian SRO will cease to apply the ‘practical approach’. If a discretionary trust with a named beneficiary or class of beneficiary that is a foreign person, acquires directly or indirectly Victorian residential land interests, that trust will be considered a foreign person. The Victorian SRO will continue to apply the ‘practical approach’ for contracts of sale entered into before 1 March 2020.

One possible solution to this conundrum is to amend the discretionary trust deed to remove from its objects any foreign persons. RSM can review trust deeds to assess exposure to the stamp duty surcharge and instruct solicitors should any deed amendment be recommended.

For more information

If you require further information or have any questions please contact your local RSM adviser

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