News & Thinking

Trusts with foreign beneficiaries stamp duty in NSW


The Duties Act 1997 (NSW) has undergone considerable change over recent years in relation to the implications of foreign purchasers acquiring Australian residential land. Now the Duties Act is again subject to amendments in relation to discretionary trusts through the introduction of the State Revenue Further Amendment Bill 2019 (NSW) (Bill).

Although the Bill is yet to be passed, action is required now to ensure that your clients with discretionary trust deeds are not inadvertently subject to the new rules.

Specifically, any client who is the trustee of a discretionary trust that holds (or intends to hold) residential land in New South Wales that has either a named foreign beneficiary or provision for a foreign beneficiary to receive a distribution, is at risk under the legislation as being considered a “foreign person”.

The consequences of being a “foreign person” are that the trustee may be liable to surcharge purchaser duty (which is an additional duty of 8% on top of existing stamp duty) and / or surcharge land tax (which is a 2% tax on top of existing land tax). This additional tax could be significant.
Under the Bill it is possible to obtain an exemption from, and refunds of, surcharge purchaser duty and surcharge land tax payable in respect of residential land by the trustee of a discretionary trust where certain conditions are met.

This includes:

  1. a “no beneficiary requirement” – where the trust deed is drafted in a way that “prevents” a foreign person from being a beneficiary of a trust; and
  2. a “no amendment requirement” – the above clause is unable to be amended to allow a foreign person to be a beneficiary at some point in the future.

Revenue NSW have advised that a trust deed can be amended as above, so that a discretionary trust does not inadvertently attract surcharge purchaser duty and / or surcharge land tax, however this amendment must be effected prior to the end of the “transition period”.
Although the original “transition period” had ended at midnight on 31 December 2019, Revenue NSW have advised that they intend to extend this “transition period” on the basis that the Bill has not passed. As at the time of writing, the extension deadline has not been confirmed save that it will be in 2020.

Accordingly, we urge all clients with discretionary trusts who hold or intend to hold residential land in New South Wales to engage a legal adviser to review their trust deeds as soon as possible. If the Bill passes and the trust deed is not amended before the end of the “transition period”, the Chief Commissioner of Revenue NSW has authority to retrospectively assess those trustees for surcharge land tax from the 2017 land tax year onward.

Further, any transfer of dutiable property that occurs before the end of the “transition period” which occurs in relation to a discretionary trust whose trust deed does not account for the “no beneficiary” requirement and “no amendment” requirement above will be subject to surcharge purchaser duty.

If your client has paid surcharge land tax or surcharge purchaser duty but is able to have its trust deed amended before the end of the “transition period”, it may be entitled to a refund for surcharge land tax and surcharge purchaser duty already paid.

Please let us know if you have any questions, we would be happy to assist you.

We’re here to help.

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Ann-Maree Ventura  Special Counsel

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