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NSW law requires that when foreigners acquire residential real estate or own residential real estate they pay additional stamp duty on acquisition of the real estate and pay land tax surcharges whilst holding the real estate. A surcharge of 8% duty applies on the acquisition of ‘residential related property’ and a surcharge of 2% land tax applies on ‘residential land’

The issue

Many discretionary trusts are drafted with a view to tax minimisation and to allow the trustee of the trust to distribute income or capital to a wide number of beneficiaries. 

As a result, there is a risk that trustees can unknowingly become liable for the surcharges. If any one of the potential beneficiaries of your trust is a foreign person, the trustee may be deemed to be a foreign person and therefore be liable for surcharge purchaser duty and/or surcharge land tax, even though none of the beneficiaries who actually receive or are likely to receive income is a foreign person. If you do nothing, NSW Revenue is likely to assess your Trust back to 2016 and to require you to pay these surcharge duties retrospectively.

How can you avoid the surcharges for your Trust?

You can amend the Trust Deed to exclude foreign persons from being beneficiaries.  Such an amendment must be irrevocable.

Should I arrange for the Trust Deed to be amended?

Not necessarily.  Firstly: please consider whether your Trust owns residential real estate or is likely to do so. If not, this issue does not apply to you.  Secondly, consider whether the longer term implications suit your situation.  For example, if you have family overseas the surcharges may be more attractive than the risk of preventing your family from receiving a distribution from the Trust.  However, you need to discuss this with us.

When should this be done?

The NSW State Revenue Legislation Further Amendment Bill 2019 provides that if you have not amended your Trust Deed to exclude foreigners by 31 December 2019 surcharge purchaser duty exemptions and refunds will no longer apply to your Trust and retrospective assessment may take place back to 2016 when the surcharges were introduced.

What should you do?

If you believe that your Trust may be caught by these provisions, please contact us urgently.

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