In accordance with the State Revenue Legislation Further Amendment Act 2020 (NSW) (“the Act”), unless your Trust Deed specifies otherwise (see below), trustees of discretionary trusts are deemed to be foreign trustees even if no eligible beneficiaries to the trust are foreign persons. This means that residential land owned, or purchased, by such a trust will be subject to surcharge purchaser duty and land tax. Surcharge purchaser duty and land tax may also apply where a discretionary trust is a shareholder in a company or unitholder in a unit trust that acquires residential land. Surcharge purchaser duty is currently 8% (in addition to transfer duty otherwise payable) and surcharge land tax is 2% (in addition to the land tax otherwise payable).
A trustee will not be considered a foreign trustee, and therefore not be subject to surcharge purchaser duty and land tax, where the Trust Deed expressly provides that:
- a foreign person is prevented from being a beneficiary, or potential beneficiary, of the Trust (‘no foreign beneficiary requirement’), and
- the clauses preventing a foreign person becoming a beneficiary, or potential beneficiary, cannot be amended to allow a foreign person to be a beneficiary, or potential beneficiary, in the future (‘no amendment requirement’).
The Act also has a retrospective effect to land acquisitions from 21 June 2016 (when surcharge liability was first implemented), and transitional provisions provide relief to those trusts who have paid surcharge duty/tax so long as the terms of the Trust Deed were amended prior to the 31 December 2020 deadline (and so long as a foreign person has not taken benefit from the Trust).
If your Trust Deed was not amended by the deadline of 31 December 2020, your trustee will be deemed to be foreign and the Trust will automatically be subject to surcharge purchaser duty and land tax on residential land owned.
However, you are still able to purchaser residential property via an existing discretionary trust (either through the trustee directly or as a shareholder or unitholder), so long as your Trust Deed contains the necessary exclusion and ‘no amendment’ provisions prior to exchange of the Sale of Land Contract. In doing so, you should consider:
- whether any existing Trust Deed should be and can be amended to exclude foreign beneficiaries, including obtaining advice or a private ruling from Revenue NSW, and
- if your existing Trust Deed cannot be amended or is not suitable for your circumstances, establishing a new discretionary trust which contains the necessary exclusion provisions.
As the liability for duty most commonly arises at the date of exchange of Contracts in NSW, it is important to seek advice (both legal and accounting) about the best option for you prior to exchange, so you do not accidentally fall foul of the surcharge purchaser duty and land tax provisions.
How we can help
Roberts Crosbie Mortensen are offering a fixed fee service for the preparation of a Deed of Variation to your discretionary trust for the required amendments as outlined above for $660.00 (incl. GST). Please contact us to have your Deed of Variation prepared.