There is a trap for trusts that own property.
Even though the trust generally only distributes to Australian residents, if they have the ability to distribute to foreign residents then they will be treated as subject to the “vacancy fee” and to state-based purchaser and land tax surcharge.
There have been ongoing changes in recent years to the tax landscape for foreign residents owning property in Australia.
However, many Australians may not realise that these changes can also affect Australian trusts that hold Australian properties. It is standard practice to include a broad class of beneficiaries in a trust deed, and any foreign resident or entity who is a beneficiary of a trust would subject the trust to some or all of the foreign resident property taxes. It may therefore be necessary to formally amend trust deeds to exclude any distributions to foreign residents.
The main tax changes that could impact Australian trusts are included in the table below. Whether or not someone is a foreign resident for Australian income tax purposes does not generally depend on their citizenship. However, the vacancy fee does not apply to Australian citizens nor to citizens of another country who live in Australia for at least 200 days in the preceding year, even though they may be foreign residents for Australian income tax purposes.
This article is authored by Helena Yuan, Tax Consulting Manager, HLB Mann Judd Sydney.