News & Thinking

Trusts with foreign beneficiaries stamp duty in VIC


The Duties Act Victoria has undergone considerable change recently in relation to the implications of foreign purchasers acquiring Australian residential land.

Specifically, it is important to be aware that any client who has a discretionary trust deed with 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 purchaser”.

The effect of this is that foreign purchasers of residential land are subject to additional duty of 8% on top of existing stamp duty. This could be significant.

The only exemption to this rule currently, is where the property would otherwise be exempt from stamp duty. In this case, the additional duty does not apply. Such an exemption however, is case specific and will turn on the individual circumstances of the purchasing entity involved.

Until now, the State Revenue Office has adopted what they call the “practical approach for discretionary trusts” in determining whether they are a “foreign purchaser” for the purpose of calculating additional duty.

The “practical approach” dictates that trusts that have foreign beneficiaries who have not and who are, based on available information, unlikely in the future to receive any distributions, will not be considered “foreign” and therefore by implication, the trust itself will not be considered a “foreign trust”.

From 1 March 2020 however, the State Revenue Office will no longer apply the practical approach. Instead, the special rules for discretionary trusts will be applied to all discretionary trusts (including family discretionary trusts), so that if the discretionary trust has any potential foreign beneficiary, the trust will generally be a foreign trust for the purpose of the provisions.

The State Revenue Office has advised that they will continue to apply the practical approach in relation to dutiable transactions where contracts of sale were entered into (or nominations were made in a sub-sale context) before 1 March 2020. However all transactions after that time will be subject to the new approach.

Given the potential exposure to additional duty, we are recommending to all clients with trust deeds that include express foreign beneficiaries or provision for foreign beneficiaries undertake an urgent trust deed review. This is because the State Revenue Office Victoria have offered some limited “safe harbours” which, if actioned as soon as possible, will mitigate the client’s exposure to this additional tax for immediate and future transactions.

From 1 March 2020, persons considering purchasing residential property can ensure that they are not liable for the foreign purchaser additional duty by using a different purchase vehicle (that is not a foreign purchaser) or by amending the trust deed so that there are appropriate restrictions on foreign persons as potential beneficiaries (e.g. include an express exclusion clause for foreigners).

Importantly, any amendment will have to be done prior to the dutiable transaction completing (i.e. prior to settlement).

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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