Foreign Trust Surcharges in NSW - Does your discretionary trust own property in NSW?

27 November 2018

Given the broad beneficiary classes often found in family trust deeds, the majority of standard discretionary trusts are likely to be classified as ‘foreign trusts’ for the purpose of surcharge land tax and surcharge purchaser duty in New South Wales.

If you own real property in New South Wales through a discretionary trust, then the terms of your trust deed will need to be urgently reviewed to determine if in fact your trust is deemed to be a ‘foreign trust’.  The consequence of being deemed a ‘foreign trust’ is that you will pay:

  • surcharge land tax (currently 2%) in addition to land tax payable for New South Wales residential land owned by the trust; and 
  • surcharge purchaser duty (currently 8%) in addition to duty payable in connection with New South Wales residential land purchased by the trust.

Revenue NSW has issued a practice note in order to provide guidance as to how the duty and land tax surcharges will be administered as it relates to discretionary trusts.  

Trustees of ‘foreign trusts’ who own property in New South Wales have until 31 December 2018 to amend their trust deeds.  Importantly Revenue NSW has made it clear that it is not good enough to simply amend the trust deed to specifically exclude any potential foreign beneficiary.  The exclusion of foreign beneficiaries must in fact be irrevocable.

Even if you have recently amended your trust deed to exclude foreign beneficiaries, you will not be in a position to obtain the benefit of the Revenue NSW ruling unless the exclusion was drafted to be irrevocable, and hence from 1 January 2019 your trust may be liable for the surcharge land tax and surcharge duty in New South Wales.

Of course careful consideration needs to be given to whether the trust deed itself permits the amendment to ensure there is no resettlement or other unintended tax consequence.  The irrevocable nature of the amendment will also mean that from a practical perspective you may have unintended results in the future where certain beneficiaries are in fact ‘locked out’.

Should you have any concerns with your discretionary trust deed, please contact Brad Clark, who will be happy to assist.

Brad Clark, Partner: (07) 3307 4527 or bclark@shandtaylor.com.au.

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