Published: 17 July 2018

Ms  FORREST  (Murchison) - Mr President, I will speak on a matter that relates to what we have just spoken about.

I have often stood in this place and raised concerns about taking bills under suspension. I raise my concerns regarding the taxation bill we dealt with recently. I made the point at the time that while I appreciated the individual briefing I was provided the day of the Budget, an hour before the Budget was delivered, I was not able to access a copy of the bill before that time and neither was anybody else. I said during the briefing that other members might comment on that during the debate. The section relating to the foreign investor duty surcharge was a very complex section of the bill - 40 pages long - and I said to them at the time, 'I guess we have to take you on trust this is going to work.' Subsequently, I had some communication from the Law Society. I asked during budget Estimates who was consulted during the process of the development of that bill - no-one was consulted, it was all done in-house.

On 22 June I received a letter forwarded to me from the Law Society of Tasmania. It was written by Will Justo, President of the Law Society. I will read the letter to highlight why we need to take much more care. It was written to the Treasurer - 

I write regarding the Taxation Related Legislation (Housing Affordability and Payroll Relief) Bill 2018 which I understand passed the Upper House last night. This is extremely regrettable as if the Government had consulted with the legal profession regarding the contents of the Bill, and as they specifically relate to Foreign Investor Duty Surcharge ('FIDS') several glaring and, we would hope, unintended and unfair consequences could have been avoided. 

I must stress from the outset that our comments are limited to the application of the Act, not the policy behind it. We have not expressed and continue to refrain from making any comment in that regard. The issues are as follows: 

1. The Treatment of Trusts and Corporations 

Trust and corporations are deemed to be foreign trusts and foreign corporations unless evidenced otherwise. Two difficulties arise. Firstly, the drafter of the legislation appears to have no understanding as to how trusts and corporate structures are drawn or work.

A foreign trust is defined in the bill as a trust in which foreign persons have a substantial interest in a trust estate. A foreign person will have a substantial interest in that estate if, taking their interests in aggregate, one or more foreign persons have a beneficial interest of 50% or more in the capital of the estate of the trust. Where it becomes difficult is that the definition continues to provide that if, under the terms of a trust, a trustee has a power or discretion as to the distribution of the capital of the trust estate to a person or a member of a class of persons, any such person is taken to have a beneficial interest in the maximum percentage of the capital of the trust estate. Many ordinary Tasmanians have discretionary family trusts. These trusts are typically drafted to cover a wide category of potential beneficiaries. The trustee has a discretion to distribute to any or all of them in whatever share they wish. Accordingly, taken literally this provision provides that if there is a single potential beneficiary who is a foreign person that that trust is by very definition a foreign trust. 

 A possible solution could be an amendment which provided that a discretionary trust would be a foreign trust if:

 (a) The trustee of the discretionary trust is a foreign person; or 

 (b) The appointor of the discretionary trust (that is the person who has the power to appoint and/or remove the trustee) is a foreign person; or

 (c) Any of the named Primary Beneficiaries of the discretionary trust were foreign persons; or

 (d) 50% of the income distributed from the discretionary trust in the 3 years prior to the dutiable transaction was distributed to a foreign person. 

Corporations on the face of it that would seem to be somewhat less problematic. It might appear relatively easy to know who the shareholders are. However, that is only the case in the most simple of corporations. Many companies have shares held by either individuals or other companies as trustee which once again raises the issues outlined above with respect to trusts. 

2. Presumption that all Trusts and Corporations are Foreign

The proposed section 4C of the Bill provides that all corporations and all trusts are taken to be foreign corporations and foreign trusts 'unless the Commissioner is satisfied' that they are not.

Assuming that the problem referred to in paragraph 1 is dealt with satisfactorily, I would estimate that the overwhelming majority of all trusts and corporations purchasing property in Tasmania would not be foreign trusts or foreign corporations. Yet the Act creates a regime by which the purchasers (and those acting with them) will need to do something to convince the Commissioner that they are not a foreign trust or foreign corporation. This extra administrative burden and cost, which will place an unnecessary workload on an already under resourced State Revenue Office, that has difficulty in meeting the demands currently placed on it, is completely unnecessary.

Furthermore, in relation to the problem referred to in paragraph 1, it is extremely difficult to see how to evidence (in a practical manner) that a trust is not a foreign trust even if there are no foreign beneficiaries, given the way that trusts are drawn (for example creating classes of children, siblings, parents, grandparents, grandchildren and the like). Whilst it might seem laughable, I am assured by the State Revenue Office that, only one week from implementation of this legislation, they do not yet know what evidence they will require.

This presumption should be removed.

3. Treatment of Contracts entered into prior to the commencement of the Act

This is something we raised during the debate -

Our other major objection is the retrospectivity of the legislation. FIDS applies to acquisitions. Importantly, an acquisition is not the signing of a contract. It is the date of settlement. Therefore there are many foreign persons (and importantly also family trusts and companies which may fall foul of the legislation for the reasons outlined above) that have signed contracts to purchase property prior to having any knowledge of this legislation. It may well be that a foreign person, trust or corporation has executed a contract of sale last year with settlement taking place in July. If they were purchasing, for example a residential property, for say $400,000.00 they will be immediately liable to pay an extra $12,000.00 in duty. That is a significant impost that will not have been taken into account. Equally disturbingly, even though foreign persons, trusts and corporations that did allow for the possibility of the legislation being passed (and of course it was only passed late last night for commencement on the 1st July 2018) and arranged their affairs for settlement to occur in this financial year may be impacted. As all Property Lawyers can attest, settlements get delayed on a regular basis for matters completely outside of purchaser's control. The best example is that a purchaser is due to settle on Friday, 29th June 2018.

The bank suddenly finds they are not ready to settle on that day or the vendor is unable to settle for whatever reason (a not uncommon occurrence where a transfer might not have arrived or the outgoing bank failed to send documents to Tasmania in time for settlement). By failing to settle on the 29th and instead of settling on Monday, 2nd July 2018 they will have automatically incurred FIDS.

We have no difficulty with the concept of duty being payable on acquisition, that is settlement. However, there should be a grandfathering provision which provides for any contracts signed (at a minimum) before the Bill passed the Upper House and preferably before the 1st July to be excluded. Such a provision is not uncommon and is generally found in Federal tax measures, for instance treatment of GST when it was introduced and GST withholding provisions as are commencing on the 1st July. 

No doubt there are other amendments that should be made to the legislation. Unfortunately, there is simply now not the time to examine it in further detail given the importance of the matters raised herein. The first notification to the profession as a whole was the attached State Revenue Office Fact Sheet which was distributed on the 14th June 2018. Prior to then, the Society has been made aware through one of their working groups that a measure was to be introduced but with absolutely no detail as to what that would include. 

The Law Society is more than willing to work with the Government to rectify the situation and to help develop a solution. However, we ask that the enactment of FIDS be delayed until these matters are properly addressed and the State Revenue Office is properly across how it will deal with evidentiary requirements. Any other course of action will be unfair and unworkable, especially given that duty must be calculated and provided to an incoming mortgagee at the time of settlement. I could envisage more mortgagees refusing to settle without additional duty being paid at settlement in the chance that a trust or corporation is deemed a foreign trust for a foreign corporation. 

I thank you for your time and await your response.

Yours faithfully, 

Will Justo



That is a long letter, but it reiterates my concern. As soon as I became aware of this, I consulted further with other lawyers who specialise in this area. Not all lawyers are across these matters as well as some. I received emails from others who received copies of Mr Justo's letter, expressing equal concern. I spoke to tax accountants who deal with trusts and they said that this is an absolute nightmare and a real problem. 

Will the Government and the Treasurer work with the key stakeholders to fix this? It will mean bringing back an amending bill to fix some of these problems. The State Revenue Office does not know how it is going to deal with this. There was no consultation outside the State Revenue Office and Treasury. I do not know what the expertise is in Treasury in dealing with some of these complex trusts and the way they are managed. I am not an expert in that field.

I urge members to listen and consider when I get up and bang on, again, about taking things under suspension. I will do it every time it happens. The only time I may make an exception following this, is if it is an urgent situation we are addressing - not some convenience because it has happened at a time that suits.

Mr Dean - Other members have also complained about bills being brought in under suspension.

Ms  FORREST  - I am not arguing it is not the case. I am saying I hope members will take this seriously. This is a classic example of where we have come unstuck.




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