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14 Apr 2020

Changes to the foreign investor duty surcharge in Tasmania

By David Wong

The rates of foreign investor duty surcharge for residential land and primary production land have both increased from 1 April 2020.

The Duties Amendment Act 2020 (Tas) received royal assent on 30 March 2020, making amendments to the Duties Act 2001 (Tas) in respect of the foreign investor duty surcharge (FIDS).

The effect of these amendments is that from 1 April 2020, the rate of FIDS for residential land has increased to 8%., and that for primary production land has increased to 1.5%. However, transitional provisions apply so that if an agreement for a transaction was signed prior to 1 April 2020, then the previous rates of FIDS will apply.

The Tasmanian legislation will now also provide some relief for discretionary trusts with respect to FIDS. Commonly, discretionary trusts are drafted so that the trustee of the trust may distribute the capital held by the trustee on trust to one or more persons at the trustee's discretion. If one of those persons to whom capital can be distributed is a foreign person, then this would result in the trust being a foreign trust. This is because potentially 50% or more of the capital in the estate of the trust could be distributed to a foreign person. In that instance, the trustee would be liable to pay FIDS on transactions involving residential or primary production land. This issue which affects discretionary trusts has recently received attention in New South Wales and Victoria within the context of additional duty charged on foreign acquirers of residential land in those two States.

The Tasmanian amendments allow for a refund of that FIDS if the trust deed is amended within 6 months of a dutiable transaction to ensure that the trustee ceases to be a foreign trust as a result of that amendment. The provisions also apply retrospectively, so that if a dutiable transaction took place before 30 March 2020 (date of royal assent), the trustee can obtain a refund of FIDS provided that the trust deed is amended within 6 months of 30 March 2020. The legislation itself is silent on the form of required amendment. The draft second reading speech and Fact Sheet to the Duties Amendment Bill 2019 suggests that the trust deed should be amended such that the trustee is not able to distribute 50% or more of the trust's capital to foreign beneficiaries.

Also, a foreign natural person who ceases to be a foreign person within 6 months of entering into a dutiable transaction may obtain a refund of any FIDS paid in respect of that dutiable transaction.

The amendments also provide the Commissioner with a general discretion not to treat a person as a foreign person for FIDS purposes.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.