Category Archives: Technical Knowledge

ATO Tackling International Tax Evasion

Australian tax residents are taxed in Australia on their worldwide income. While most do the right thing and declare all their income, some try to avoid paying tax by exploiting secrecy provisions and the lack of information-sharing between countries. As the world becomes more interconnected and barriers are broken down, it is inevitable that there are fewer places for the unscrupulous to hide from tax.

With the rise of the global economy and easy flow of money across borders, no country is immune to international tax evasion and money laundering. A recent coordinated effort with Joint Chiefs of Global Tax Enforcement (J5) shows that member countries, including Australia, are doing all they can to protect their tax revenue. This most recent investigation yielded evidence of tax evasion by Australians using an international institution located in Central America.

Tax chiefs from the J5 countries met in Sydney on 17–21 February 2020 to share information about common mechanisms, enablers and structures that are being exploited to commit transnational tax crime. The J5 was initially formed in 2018 to fight global tax evasion and consists of the tax and revenue agencies of Australia, United Kingdom, United States, Canada and the Netherlands. The countries share intelligence on international tax crime as well as money laundering.

The current international investigation started on information obtained by the Netherlands, which led to a series of investigations in multiple countries and concerned an international financial institution located in Central America whose products and services are believed to be facilitating money laundering and tax evasion for customers across the globe.

J5 members believe that through this institution, a number of clients may be using a sophisticated system to conceal and transfer wealth anonymously to evade their tax obligations and launder the proceeds of crime. The enforcement action consisted of evidence, intelligence and information-collecting activities such as search warrants, interviews and subpoenas.

According to the ATO, several hundred Australians are suspected of participating in these arrangements. The ATO is currently proceeding with multiple investigations with support from the Australian Criminal Intelligence Commission (ACIC). In addition, it is encouraging anyone with information about the scheme or other similar arrangements to contact the ATO.

ATO Deputy Commissioner and Australia’s J5 Chief, Will Day, has said, “this multi-agency, multi-country activity should degrade the confidence of anyone who was considering an offshore location as a way to evade tax or launder the proceeds of crime”.

While the J5 is a powerful tool, it is by no means the only one in the ATO’s arsenal. The ATO also has a network of international tax treaties and information exchange agreements with over 100 jurisdictions, and uses them to identify facilitators such as banks, lawyers and financial advisers. Once a pattern has been identified, such as a practitioner with a large number of clients using the same methods to avoid or evade tax, the ATO is likely to look closely at the entire client base.

In recent years over 2,500 exchanges of information have occurred, enabling the ATO to raise additional tax liabilities of $1 billion. The message from the ATO is that anyone with offshore income or assets is better off declaring their interests voluntarily. Those who do so may have administrative penalties and interest charges reduced.

It’s important to keep in mind that holding offshore assets is not just for the wealthy. Australians with migrant backgrounds may not even know they hold offshore assets in some cases, but those assets are still subject to tax law. For example, grandparents or other relatives may start a bank account in an Australian’s name in another country to make contributions celebrating a holiday, birthday or other life event.

Click here to read more on the ATO website.

Amidst the growing fears around the spread of COVID-19 (coronavirus), we would like to take this opportunity to reassure our clients that Economos are committed to ensuring that the disruptions are kept to a minimum.

As you know this is an unprecedented and constantly evolving situation. The health and safety of our clients and employees are our number one priority and managing the risk of transmission of coronavirus is critically important.

Tax Obligations

The Australian Taxation Office (ATO) together with the Government’s economic response will be assisting taxpayers who experience financial difficulties due to COVID-19.

For more information on the ATO support:

At this stage there have been no announcements with regards to any extensions to lodgement due dates. We will monitor and advise you of any developments.

Contact with our team and visiting our office

Based on the information provided by the Australian Government – Department of Health, we will be exercising social distancing. Accordingly, all face-to-face meetings will be held electronically via telephone or web meeting.

Our team have the technology and devices to be able to continue to support you regardless of work location.

For the latest information about coronavirus in Australia, visit the Australian Government’s Department of Health website or contact the coronavirus health information line: 1800 020 080.

We encourage our clients and the community to remain calm, if we work together to follow protocols within our community, we can help to reduce the risks associated to coronavirus.

We will get through this together.

Investing in Property through an SMSF

SMSFs can acquire property directly or indirectly through property trusts or via a Limited Recourse Borrowing Arrangement (LRBA).

Direct Property Investments

A direct property investment is the direct purchase of a specific residential or commercial property, using cash (no borrowings). The property would be unencumbered, i.e. not used as security against any borrowings.

The property cannot be leased to a related party of the SMSF with the exception of Business Real Property. Meeting the definition of ‘Business Real Property’ can get complicated and there is a tax office ruling dedicated to this concept – SMSFR 2009/1.

Tenants in Common

Tenants in Common is a structure where an SMSF co-owns a property with another party. Tenants in Common have fixed entitlement in the property and can be unequal shares. For example, one party may own one third and the other owns the remaining two thirds.

Indirect Property Investment

Unlisted Unit Trusts

An unlisted unit trust is where a group of investors pool their money together under a trust structure and buy a property under the name of the trust. An SMSF would acquire units in the unit trust thereby owning a share in the property indirectly. This is a common strategy where an SMSF has insufficient capital to acquire the property directly.

The other investors in an unlisted unit trust can be related or unrelated. Where the other unit holders are related, there are strict rules the unlisted unit trust must follow.

The trust must comply with section 13.22C of the Superannuation Industry (Supervision) Regulations 1994 (SISR). The trust must:

  • Not borrow
  • Not lease the assets to a related party of the SMSF. With the exception of a lease relating to Business Real Property.
  • Not invest in another entity e.g. shares in a company
  • Not subject the property to a charge i.e security for a mortgage
  • Not purchase a property previously owned by a related party. An exception applies to Business Real Property acquired at market value.

Please note the above is a highly simplified form of the criteria set out in Reg 13.22C of the SISR and the full criteria of the law must be satisfied to ensure the investment is not considered an In-House Asset.

Listed Property Trusts & Real Estate Investment Trusts

Listed Property Trusts and Real Estate Investment Trusts (REITs) are of a similar structure to unlisted unit trusts but they are list on the stock exchange. An SMSF can purchase units on the market and because they are listed on the stock exchange, they are easily purchased and sold thereby improving liquidity.


An SMSF can borrow to invest in property directly. Section 67A of the Superannuation Industry (Supervision) Act 1993 (SISA) provides an exemption from the prohibition of SMSF Borrowing. The basic principles of section 67A are as follows:

  • The borrowing is applied for the acquisition of a ‘single acquirable asset’ *see below
  • The borrowing must be used to purchase an asset that is to be held on trust
  • The asset being purchased under this arrangement must not otherwise be prohibited from being acquired by the SMSF under superannuation laws.
  • The asset is held on trust so that the SMSF receives the beneficial interest
  • The SMSF has the right to acquire legal ownership
  • The lender’s right to recoup against the loan must be limited to the recovery from the specific asset (limited recourse)

* Single Acquirable Assets – the purchase of land or land with a house would meet this definition. However, sometimes there may be multiple titles in a single purchase which may suggest that the property is not a single asset. If the property is considered multiple assets, separate LRBAs will be required for each asset. Where there is a physical or legal impediment to the property that prevents it from being sold separately, it may constitute a single asset e.g. a building built over multiple titles.

Can a SMSF property be purchased from a related party?

Section 66 of the SISA prohibits the SMSF from acquiring assets from its members or related parties with the exception of Business Real Property and listed shares. It is important to note that residential property is not included in this exception.

Furthermore, if the property being purchased does meet the Business Real Property exemption, it must also be acquired at market value. The valuation must be based on objective and supportable data. Although the valuation guidelines do not insist upon independent or external valuations in all circumstances, the ATO recommends the use of a qualified independent valuer to determine the market value.

The superannuation laws are complex and it is of paramount importance to consider obtaining professional legal, accounting and financial advice before investing in property using your SMSF.

Speak to one of our SMSF Property Experts or Investment Property Tax Accountants

Speak to one of experienced SMSF Accountants in Sydney. Leanne Tinyow is Economos’ Head of SMSF Services and is in charge of the compliance and administration of over 400 Self-Managed Super Funds. She is also well versed in helping new clients with SMSF setup and sdministration and can answer several SMSF property related questions.

Alternatively, if you would like to speak to one of our experienced Property Tax Accountants, George Shahinian is Economos Managing Partner and has extensive experience with investment property tax and deductions including dealing with Development and sub-division, Commercial Fit-out and refurbishments, Building and Construction and Construction Management and Real Estate agencies.

Are You Eligible for the Downsizer Superannuation Contribution Effective as of the 1st July 2018?

The downsizer superannuation contribution allows individuals aged 65 years or over to use the proceeds from the sale of their main residence to contribute to superannuation of up to $300,000.

This reform was part of the Housing Affordability Package announced in the 2017-18 Federal Budget and was legislated on 13 December 2017.

This measure applies from 1 July 2018.

How does it work?

There are 4 main components to be eligible to make this type of contribution

1. The Person

• You must be 65 years or older
• The usual restrictions on contributions such as the work test and having less than $1.6 million in total super balance are disregarded
• The contribution does not count towards any of the superannuation contribution caps
• Must not claim a deduction for the contribution

2. The Home

• Contracts must be exchanged after 1 July 2018 – settlement date is irrelevant
• The home must be in Australia and be affixed to land i.e. not a caravan or a houseboat
• You must have owned the property for at least 10 years (this is based on the original purchase settlement date to the time that legal ownership passes to the new owner (settlement date)
• Held at all times during that period by you, your spouse or former spouse
• There is no need for the non-owner spouse to have been in a relationship for 10 years or more
• The home must be eligible for full or part main residence CGT concession. The property being sold does not have to be the current home; it could be a former home that is now an investment property.

3. The Contribution Cap

The maximum contribution per person under this measure is the lesser of:
• $300,000 or
• The proceeds received from the sale of the property

For example, if a couple sold their home for $1 million, they can contribute up to $300,000 each. However if they sold it for say $400,000, they could only contribute say $200,000 each or a combination up to $400,000.

4. Making the Payment

• Contribution must be made to a complying superfund within 90 days after sales proceeds are received
• Complete and submit to the superannuation fund, the tax office approved form (available from 1 July 2018)

Although this measure is called a downsizer contribution, for the person selling, they are not restricted to buying a smaller dwelling. There is no requirement to purchase another property and it is possible to purchase a larger or more expensive replacement property.

It is important to remember, for those receiving social security benefits such as the Aged Pension, the home/main residence is asset test exempt. When the property is sold, the proceeds from the sale is not exempt and any contribution made to a complying superannuation fund will be included the assessment.

The downsizer contribution could assist older Australian upsize their superannuation savings.

However, it is important to seek professional financial advice, in particular those in receipt of Centrelink benefits, before making the decision to make a downsizer contribution.

Top 5 questions for property investors about the new depreciation regime


The Government announced sweeping changes to the depreciation regime for property investors in the 2017-18 Budget.

The Treasury Laws Amendment (Housing Tax Integrity) Act 2017 implements these proposed measures and could have a significant impact on property investors going forward.

What are the rules trying to achieve?

The Government was concerned about the ‘refreshing’ of values of depreciating assets from one property investor to the next and therefore, the ability to ‘over depreciate’ items across multiple owners.

For example, a fridge acquired by a landlord for their investment property for $1,100 is fully depreciated. When the property is sold (along with the fridge), there are no tax consequences in relation to the fridge on the basis that it is worthless. The incoming purchaser (another investor) obtains a report that the fridge is worth $350 and this amount is depreciated.

What do the new rules say?

The new rules:

  1. apply to residential premises only (taking its definition from the GST Act); and
  1. do not apply to excepted entities.

The new rules reduce your depreciation deductions from the use of residential premises to provide residential accommodation (but not in the course of carrying on business) if:

  1. you did not hold the asset when it was first used or installed ready for use (other than as trading stock) by any entity; or
  1. at any time during the income year (or an earlier income year), the asset was used, or installed ready for use, either:
  • in residential premises that were one of your residences at that time; or
  • for a purpose that was not a taxable purpose, and in a way that was not occasional.

 Therefore, broadly, if you did not acquire the depreciating asset new, or you acquired it new but it was first used for private purposes (such as in your own home), the depreciation deductions are reduced.

Who are excepted entities not subject to the new rules?

Excepted entities are corporate tax entities, superannuation plans (other than SMSFs), public unit trusts, managed investment schemes and partnerships or unit trusts if all members/unit holders are other excepted entities.

What if I buy a new property including new depreciating assets?

 A specific exception applies for depreciating assets acquired along with the purchase of new residential premises where (amongst other things), either:

  1. at no earlier time was an entity residing in the residential premises in which the depreciating asset was used, or installed ready for use; or
  1. the depreciating asset was previously used, or installed ready for use but the supply of the new residential premises occurs within 6 months of the property becoming new residential premises.                     

 On eventual disposal, or the depreciating asset stops being used, a balance adjustment is triggered. However, to the extent that the relevant depreciation amounts have not been deductible, they will likely trigger a capital loss (capable of being carried forward and offset against any capital gain on the eventual disposal of the property itself).

 What about my existing depreciating assets?

 The new rules apply from 1 July 2017 onwards for depreciating assets acquired under contracts entered into (or otherwise acquired) at or after 7:30pm (ACT time) on 9 May 2017.


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5 Key Questions: Foreign-owned Australian developers back on a level playing field


Most property developers and advisers are aware of the recent changes regarding NSW duty and land tax surcharges for ‘foreign persons’.

The broad definition of ‘foreign person’ means that many Australian domestic entities with foreign ownership (deemed or actual) of 20% or more (directly or indirectly) are subject to the surcharges.

The aim of the surcharge measures was to curb foreign investment in NSW property given its perceived role in pushing up house prices. However, in providing a one-size-fits-all approach, capturing both foreign investors and developers alike, the NSW government was both:

  1. Limiting demand – as foreign investors faced increased acquisition and ongoing holding costs; and
  1. Limiting supply – as foreign-owned Australian corporations could be forced to withdraw from the market given the increased costs involved.

In recognition of these issues, legislative amendments were introduced earlier this year to make the surcharge more targeted, however, they were yet to commence before the passage of superseding legislation.

Question 1 – What is the amending legislation?

 The amending legislation is the State Revenue Legislation Amendment (Surcharge) Act 2017 (“Act”) and it amends both the Duties Act 1997 (“Duties Act”) and the Land Tax Act 1956.

Question 2 – What are the changes?

Duty SurchargeLand Tax Surcharge
  • Australian corporation transferee of residential-related property entitled to refund if Chief Commissioner satisfied:
    • new home constructed on land by transferee (or related body corporate) and sold to 3rd party purchaser without first being used or occupied (other than as display home); or
    • land subdivided by transferee for new home construction and sold after issue of subdivision certificate;
  • amount of refund is determined by Treasurer as published in the Gazette;
  • Chief Commissioner may exempt a transferee if satisfied that they are likely to be entitled to a full refund;
  • exemption may be subject to conditions;
  • surcharge duty only refunded if:
    • application for refund within 12 months after completion of sale of new home or issue of subdivision certificate; and
    • no later than 10 years after completion of transfer to Australian corporation.
  • Australian corporation entitled to refund of surcharge land tax re: residential land owned by corporation at midnight on 31 December if Chief Commissioner satisfied that:
    • new home constructed on land by the corporation/related body corporate (before or after taxing date) and sold after taxing date to 3rd party purchaser without first being used or occupied (other than as a display home); or
    • land subdivided by corporation (before or after taxing date) for new home construction after taxing date and issue of subdivision certificate;
  • amount of refund is that determined by Treasurer as published in the Gazette;
  • Chief Commissioner may approve a person as exempt transferee for a particular transfer if satisfied corporation likely to be entitled to full refund;
  • exemption may be subject to conditions;
  • surcharge land tax only refunded if application for refund within 12 months of completion of sale of new home or issue of subdivision certificate and:
    • if completion of transfer to Australian corporation occurred before 21 June 2016 – not later than 21 June 2021; or
    • otherwise – 10 years after completion of the transfer to Australian corporation.

Question 3 – What is residential-related property?

Residential-related property includes residential land in NSW, an option to purchase residential land in NSW, certain other interests in land and a partnership interest (where the partnership has residential-related property).           

Question 4 – What is an ‘Australian corporation’?

An Australian corporation means a corporation that is incorporated or taken to be incorporated under the Corporations Act 2001. Therefore, unlike the definition of a corporation elsewhere under the Duties Act (such as the corporate consolidation transaction rules), a corporation does not include a unit trust for present purposes.

Question 5 – What should you do?

Property developers and their advisors should:

  1. confirm whether or not the surcharge rules affect them; and
  1. if so:
    1. confirm whether they are entitled to a refund or exemption under the new rules and, where applicable, apply for same;
    2. re-work their feasibility studies to remove these additional costs where it is reasonably anticipated that they will qualify;
    3. going forward, apply for exemption upfront so as to improve cash flow and provide certainty from the outset.

If you or your clients need any assistance in relation to the above, or tax structuring and feasibility analysis more broadly, let’s talk!

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How the Superannuation changes impact Insurance and Estate Planning strategies

From 1 July 2017, significant changes to superannuation, consequently impact insurance and succession planning strategies which may give rise to the need for reviewing of existing insurance and estate plans.


Key points:

  • Dependents can now choose from which super fund their pension commences by rolling over to their fund of choice.
  • Limitations now apply on the ability to receive Life Insurance proceeds as pensions.

Rollover of death benefit

One of the reforms that applies from 1 July 2017 is the ability to rollover a death benefit to another superannuation fund.

Dependants can now choose from which superannuation fund their pension commences, by rolling over to their fund of choice. This allows more flexibility when deciding which superannuation fund to hold insurance in at the outset, as some do not have the capability to pay a pension.

Only dependants who are currently able to receive a pension will be able to roll to another fund in order to commence a pension — there is no change to eligibility. Specifically, this is the deceased’s:

  • Spouse
  • Child under age 18, age 18–25 and financially dependent, or any age and disabled
  • Financial dependant, or
  • Someone who was in an interdependency relationship with the deceased just prior to their death.

Whether the pension commences in the fund that insurance is held, or in another fund into which proceeds are rolled, tax may apply to pension payments if the beneficiary is under age 60 when they receive them, and the deceased was under age 60 at their date of death.

Implications of the transfer balance cap

The $1.6 million transfer balance cap, which has applied since 1 July 2017, limits the amount that can be used to commence a pension. This affects death benefit pensions, with different rules applying for discretionary and reversionary death benefit pensions, and child pensions.

Discretionary death benefit pensions

A discretionary (non‐reversionary) death benefit pension may commence when the dependant beneficiary has given specific instructions; or when the trustee is acting on guidance, or a BDBN, provided by the deceased before their death.

Where the trustee commences a death benefit pension that is not a reversionary pension, the commencement value of the pension counts as a credit towards the transfer balance account on the date that the death benefit pension commences.

The commencement value includes any investment earnings accrued to that point, including proceeds from a term life policy — regardless of whether the policy was held in the accumulation or pension phase of the deceased member.

If a discretionary death benefit pension is paid, where superannuation savings and term life proceeds are in excess of the transfer balance cap, the excess will need to be paid out from superannuation as a lump sum. Therefore, while it may be beneficial to fund the full sum insured inside superannuation for affordability reasons, the entire amount of the proceeds may not be retainable inside superannuation.

Reversionary death benefit pensions

A reversionary death benefit pension is a pension that commenced in the name of the deceased and, upon their death, continues, but in the name of their nominated dependent beneficiary. The pension does not cease at any point, as the reversionary beneficiary is immediately entitled to receive payments.

In this scenario, for pensions that reverted on or after 1 July 2017, a transfer balance credit equal to the value of the reverted pension on the date of death, will show in the transfer balance account 12 months after the date of death. The 12‐month grace period allows the dependent beneficiary enough time to rearrange their superannuation interests to ensure that they do not breach the transfer balance cap.

Any term life proceeds paid from a policy held in the pension account will be paid after the date of death. Therefore, it appears that these will not count towards the transfer balance cap. Industry guidance has not clarified this point, and thus a private ruling may be required.

Child pensions

The rules differ for child pensions derived from death benefits, in that the child’s transfer balance cap refers to their portion of the parent’s retirement phase interests. Once the child pension ceases, the child’s transfer balance will extinguish, and they will be able to utilise a second transfer balance cap as an adult.

If the child pension commences after 1 July 2017, the applicable transfer balance cap will depend on whether the parent had a transfer balance account or not. A transfer balance account will exist for the parent if they had an existing pension at their date of death, or they had previously commenced a pension that they subsequently exhausted.

If the parent did not have a transfer balance account and they died on or after 1 July 2017, the child’s transfer balance cap is their portion of the parent’s superannuation interest (including insurance proceeds) multiplied by the general transfer cap ($1.6 million (2017/18)). For instance, if the deceased adult has four children, each could commence a pension with a maximum account balance of $400,000 ($1.6 million/4).

If there is a superannuation balance available, and the term life sum insured is large, it is possible that not all proceeds will be payable as a pension. The remainder will need to be paid to the child(ren) as a lump sum.

If the parent had a transfer balance account and they died on or after 1 July 2017, the child’s transfer balance cap is their portion of the parent’s retirement phase interest that the child has received as a death benefit pension. A retirement phase interest includes any investment earnings accrued after death but before commencement of the child pension, however, it excludes proceeds from a term life policy.

Therefore, in this scenario, regardless of whether term life insurance is held in the accumulation or pension phase, proceeds from the policy will need to be paid to the child as a lump sum.

While there may be limitations on the proportion of term life proceeds that are payable as a pension, the parent may still choose to fund insurance from, and therefore own cover inside, superannuation.


The recent super changes have inadvertently impacted pension strategies which are utilised as a tax effective strategy for dealing with Life Insurance proceeds, at the same time flexibility has increased with the ability to now rollover death benefit pensions to a super fund of the dependents choosing.


Sam Perera

02 9266 2279

[email protected]

Source: Kaplan, A step by step guide to insurance and estate planning from 1 July 2017.

I’m buying an investment property, what is the best structure?

When you decide to buy an investment property, the first question you ask your tax adviser is “what is the best tax structure for my investment property?”.

Unfortunately, there is no ‘one-size-fits-all’ approach and which particular tax structure is best for you and your property investment depends on a number of variables.

Asset Structuring issues to consider

Asset Protection

If you are in an ‘at-risk’ occupation or run a business, you generally avoid holding assets personally, however, this means that you may have to forgo the negative gearing benefits of direct personal ownership.

Negative Gearing vs Positive Gearing and Investment Property Structure

Whether an investment property will be positively or negatively geared is relevant to the choice of structure.

Net rental losses from an investment property may be offset against income from other sources, for example, if you held an investment property directly you can apply those losses against your salary and wage income. However, if an investment property is held by a company or trust:

  1. unless the entity has other sources of income, there is nothing to apply the net rental losses against;
  2. the losses are trapped in the entity and do not flow out to shareholders or beneficiaries; and
  3. the losses may be applied against future income (subject to various loss tests).

Further, if the investment property will be negatively geared, how long you expect it to remain so is another relevant factor. For example, the disadvantages of having losses trapped in a trust over the short-term may be outweighed by the ability to stream rental income and capital gains over the medium to long-term.

Availability of the 50% CGT discount (Capital Gains Tax)

Subject to various conditions, individuals and trusts are eligible for the 50% CGT discount whereas companies are ineligible for CGT discount. Therefore, it is generally preferable to hold capital assets directly or through a trust.

NSW duty issues

NSW has introduced a number of changes relating to ‘foreign persons’, that is:

Duty Surcharge

Duty Surcharge relates to purchases by foreign persons, including:

  1. any individual (other than Australian citizens) not ordinarily resident in Australia (200+ days in 12 months); and
  2. any company or trust in which one or more foreign persons holds a substantial interest (20%+).

Critically, despite the fact that technically, a beneficiary of a discretionary trust has no ‘interest’ in the trust at all, all beneficiaries are effectively deemed to have a substantial interest in the trust such that the (Australian) trust is treated as a foreign person for present purposes.

Duty Surcharge is now 8% (on top of ordinary duty of up to 5.5% for properties over $1m and 7% for residential land over $3m [premium property duty]), that is, total duty of up to 15% may apply to foreign persons!

Therefore, in relation to acquisitions of NSW property through trusts, you should carefully consider:

  1. how any new trust deed is prepared, for example, does it specifically exclude any distributions to beneficiaries that would cause the trust to be a foreign person for present purposes?
  2. if you plan on acquiring the property in an existing trust with other assets, for example, shares, should you:
    1. maintain the status quo knowing that it will be a foreign trust for duty purposes but allowing you to continue to make distributions to beneficiaries who are foreign persons; or
    2. amend the trust deed to prevent any distributions to beneficiaries who are foreign persons for duty purposes, which would also prevent any distributions of other trust income to foreign persons as well.

Whether or not a trust deed can be amended and the tax and duty implications of same (if any) must be carefully considered prior to proceeding.

NSW land tax

Land tax is generally levied annually at $100 + 1.6% of the relevant value over the land tax-free threshold (“Threshold”), where available.

The current (2017) Threshold is $549,000 (Valuer-General value not ordinary market value).

There are various issues to consider in this context:

  1. does the particular structure facilitate access to the Threshold?
  2. if so – is the benefit of the Threshold at the entity level maintained in flowing up the chain of ownership?
  3. is the owner a foreign person such that the land tax surcharge applies at the rate of 0.75% (for 2017) and 2% (2018 onwards).

Broadly, individuals, companies and fixed trusts are eligible for the Threshold, whereas discretionary trusts are not. However, a trust that is commercially understood to be a fixed trust will not necessarily be a fixed trust for land tax purposes (which has very rigid requirements).

Further, even if a trust is fixed for land tax purposes and the Threshold is available at the trust level, the benefit of the Threshold may be effectively reversed out at the beneficiary level where the beneficiary is:

  1. ineligible for the Threshold; or
  2. eligible for the Threshold but already has other NSW real property interests over the Threshold.

Finally, foreign persons will be subject to the land tax surcharge even if ordinary land tax does not apply because:

  1. the value of the land is under the Threshold (i.e. land tax surcharge applies from the first $1 even if the taxpayer is eligible for the Threshold in relation to ordinary land tax); or
  2. the principal place of residential exemption applies (with certain exceptions for New Zealand citizens holding Special Category Visas who are ordinarily resident in Australia).


As you can see, there are a number of issues to consider when deciding how to structure your investment property for tax purposes. See here for a table on some of the key considerations when buying an investment property in NSW – Structuring Options Table

Of course, if you are considering an investment property in another State or Territory, their particular duty and land tax consequences must be carefully considered but overall, the issue is not what the ‘best’ structure is but what best for you in the particular circumstances.

If you or your clients need any assistance for this or any other tax issues, let’s talk!

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Disclaimer – This article is general in nature and does not constitute, and cannot be relied upon, as providing specific advice.

Issues for Aussie expats selling their (former) main residence


Treasury has released the Exposure Draft for Treasury Laws Amendment (Housing Tax Integrity) Bill 2017: Capital gains tax changes for foreign residents (“Exposure Draft”).

The Exposure Draft is aimed at implementing the Federal Government’s 2017-2018 Budget measures in this regard to specifically deny the availability of the main residence exemption where, at the time the CGT event happens, you are a foreign resident.

In the ordinary course, the relevant CGT event will be CGT event A1 – disposal of a CGT asset and the timing is either:

  1. when the relevant contract for disposal was entered into; or, in the absence of any contract;
  2. when the change of ownership occurs.

The absence rule

Traditionally, Australian ex pats living and working overseas were able to take advantage of the absence rule, that is, where a dwelling was initially established as their main residence, they could subsequently vacate the dwelling but continue to treat it as their main residence for CGT purposes:

  1. if the dwelling was used to derive income (e.g. was rented out in their absence) – for up to 6 years; and
  1. if the dwelling was not used to derive income – indefinitely.

Impact of the proposed legislation

Assuming that the Exposure Draft is introduced in its current form, if an individual is a foreign resident at the time their main residence (or former main residence) is sold, they will not be entitled to the main residence exemption. Critically, the main residence exemption is not even available on a proportionate basis for the period of time the individual was both:

  1. Australian resident; and
  1. living in the dwelling as their main residence.

Worst still, foreign residents are not entitled to the benefit of the 50% CGT discount and therefore, individuals will pay capital gains tax at up to 45% (depending on when they acquired the property and their residence status over the ownership period).

Based on the above, Australian ex pats living and working overseas will have to be careful in deciding if and when to sell their main residence as if they are foreign resident at the time of the relevant CGT event (generally contract date), the entire gain will be ineligible for the main residence exemption and without the benefit (or at least the full benefit) of, the 50% CGT discount.

Is there anything ex-pats can do?

The proposed legislation will not apply to individuals who held a dwelling as at 7:30pm on 9 May 2017 (when the Budget proposal was announced) and the relevant CGT event happens on or before 30 June 2019.

No one has a crystal ball and therefore, it is difficult to determine whether ex pats in these circumstances should:

  1. consider selling their main residence to take advantage of the transitional reprieve;
  1. rely on returning to Australia and re-establishing Australian residence prior to the relevant disposal at some stage in the future; or
  1. simply accept that they will be subject to capital gains tax without the benefit of (or at least the full benefit of) the 50% CGT discount on eventual disposal.

 Whatever the outcome, Australians living and working overseas in these circumstances should carefully consider their options and plan accordingly.

If you need any assistance on how the proposed legislation could affect you, feel free to get in touch.

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Are you sure your foreign company is outside the Australian tax net?

On 30 June 2017, a paper of mine was published in the Asia Pacific Tax Bulletin.

The article discusses the impact of the High Court decision in Bywater and specifically addresses whether it:

  1. represented a clear step towards a substance over form approach in applying the central management or control test; or
  2. did no more than confirm the status quo as a purely factual analysis in the particular circumstances.

As e-commerce and the digital economy continue to change the global economic landscape, expanding overseas isn’t as simple as incorporating a company in a chosen jurisdiction. Rather, Australian proprietors have to ensure that they successfully navigate both Australia’s tax residence rules and the controlled foreign company regime in order to ensure that the income generated offshore is not taxed directly in the hands of either:

  1. the foreign-incorporated company itself (where it is treated as an Australian tax resident); or
  2. any Australian-resident controller(s) (where the foreign-incorporated company is not an Australian tax resident but it is a controlled foreign company with attributable income)

It is only after jumping through these two hoops that Australian shareholders will be taxed in the ordinary course as and when the relevant foreign company distributes dividends.

If you or your clients need any assistance in relation to expanding overseas, or to review any existing structures, feel free to get in touch!