Tasmania introduces foreign person land tax and duty changes
Recent legislation imposing a foreign investor land tax surcharge in Tasmania may have implications for certain SMSFs.
The Tasmanian Government has recently introduced legislation to impose a Foreign Investor Land Tax Surcharge, a commitment from the 2021 state election. There has also been legislation introduced that would amend the Foreign Investor Duty Surcharge for Tasmania. This article acts as a brief simplified overview and there are complexities that must be considered in any matter.
The Land Tax Amendment (Foreign Investors) Bill 2022 will amend the Land Tax Act 2000 (Tas) to introduce a land tax surcharge from 1 July 2022 (foreign investor land tax). The Land Tax Rating Act 2000 (Tas) is also to be amended. The terms used in the Land Tax Act 2000 (Tas) for ‘foreign person’, ‘foreign natural person’, ‘foreign trust’, ‘foreign trustee’ and ‘foreign corporation’ are defined simply as ‘has the same meaning as in the Duties Act 2001’.
Some key points are:
- The foreign investor land tax is an additional 2 per cent of the assessed land value of residential land in Tasmania. There are no thresholds.
- It generally applies to ‘residential land’, with various exclusions, such as commercial establishments providing short-term accommodation and property used by educational establishments, or used in a residential care service (Excluded Commercial Residential Property).
- It does not apply to ‘principal residence land’.
- It includes vacant land on which a building may be lawfully constructed and occupied as a place of residence.
- It applies to any interest in residential land that is:
- acquired by a foreign person on or after 1 July 2022; or
- owned by a foreign company or trust that becomes foreign on or after 1 July 2022.
- It could also be applied where a foreign person acquires a further interest in the same land after 1 July 2022.
- There is a mechanism for re-assessment of land tax where a trust deed is amended to exclude foreign persons.
- Tasmanian based developers producing 50 or more dwellings in a year can apply to be re-assessed to be exempt from the tax.
- Owners must notify the Commissioner of a change in their liability for land tax within 30 days. Fines apply.
- The Commissioner can make various determinations regarding foreign person status or the status of land.
The Duties Amendment Bill 2022 proposes to change some aspects relating to the foreign purchase duty surcharge in the Duties Act 2001 (Tas). Note that some changes (such as those to the meaning of foreign trust and residential property) will have retroactive effect from 1 July 2018.
Some key points are:
- It confirms how SMSFs will be treated as ‘foreign trusts’. Broadly, each member’s balance is taken as their interest for the purposes of determining whether the SMSF is a foreign trust. That is, an SMSF can be a foreign trust under these rules if members (or beneficiaries) who are foreign persons have a ‘substantial interest’ (50 per cent or more). We already understood this to be the case.
- It confirms how testamentary trusts will be treated as ‘foreign trusts’. Broadly, a beneficiary of the trust is taken to have a beneficial interest in the capital of the trust, to be calculated as the amount to which the beneficiary would be entitled were the estate fully administered. Where a foreign person had a ‘substantial interest’ (50 per cent or more) calculated in this way, the testamentary trust would be a foreign trust. Note this appears to provide a different application than normal discretionary trusts.
- It clarifies the meaning of ‘residential property’ to not include Excluded Commercial Residential Property.
- It allows for the re-assessment of duty on Excluded Commercial Residential Property within 12 months after the dutiable transaction.
- Tasmanian based developers producing 50 or more dwellings in that year can apply to be re-assessed to be exempt from surcharge duty.
- It seeks to prevent double duty applying to certain non-interest-based financing arrangements, such as those undertaken in Islamic finance arrangements.
In Tasmania all trusts and corporations are taken to be foreign unless proven otherwise, so planning is essential to ensure these surcharges are not unnecessarily imposed.
By Shaun Backhaus, senior associate and Daniel Butler, director, DBA Lawyers