“Most states now impose surcharge on acquisition of residential land by foreign persons, although the rules relating to and the rate of the surcharge vary between each state,” Townsends explained in a recent article.

“In NSW, surcharge purchaser duty is charged on foreign persons or deemed foreign persons who acquire residential land in NSW. From 1 July 2017, the surcharge rate has increased to 8 per cent on the value of the property which is payable in addition to any normal duty on the purchase.”

For the purposes of the surcharge, Townsends explained that an individual is a foreign person if the person is not ordinarily resident in Australia.

In terms of trustees of a trust, however, a trustee could be deemed foreign if a foreign person, alone or with one or more associates, holds a substantial interest in the trust. A substantial interest would mean they are entitled to at least 20 per cent of the income or property of the trust, Townsends explained.

A trustee could also be deemed foreign if two or more foreign persons, with any one or more associates of them, hold an aggregate substantial interest in the trust. In other words, they are entitled to 40 per cent of the income or property of the trust.

“In the context of an SMSF, a trustee may be subject to the surcharge if the members are foreign persons. If all members are Australian citizens, the foreign surcharge will not apply as they are taken to be ordinarily resident in Australia under the Duties Act even if they currently reside overseas,” the law firm explained.

However, it is also important to note from the definition of foreign person, it said, that the term associate includes any relatives of a foreign person.

“Given that, in most cases, members of SMSFs are related, having just one foreign person as a member in an SMSF may cause the SMSF to be subject to the surcharge duty when it acquires a residential land in NSW,” it said.