23/03/2020
Have you established a discretionary trust?
If so, you may be interested to know about the proposed legislative developments referred to below.
Proposed Legislative Amendments
Under the proposed State Revenue Further Amendment Bill 2019 (NSW) 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 will be given if:
1. the terms of the trust deed prevent a foreign person from being a beneficiary of the trust (no foreign beneficiary requirement); and
2. the clause preventing a foreign person becoming a beneficiary cannot be amended to allow a foreign person to be a beneficiary at a later time (no amendment requirement).
Relevantly, the proposed Bill provides that:
If the trustee of a discretionary trust is liable in that capacity as a foreign person for surcharge land tax in respect of the 2017, 2018, 2019 or 2020 land tax year—
a) the trustee is exempt from that land tax if the terms of the trust have been amended, before payment of the land tax is due and before midnight on 31 December 2020, so that the trust prevents a foreign person from being a beneficiary, or
b) if that land tax has been paid, the trustee is entitled to a refund of that land tax if the terms of the trust have been amended, before midnight on 31 December 2020, so that the trust prevents a foreign person from being a beneficiary.
The Bill has been passed by the Legislative Assembly but yet to be passed by the Legislative Council. As it currently stands, the Bill sets a deadline of 31 December 2020 for the terms of a discretionary trust to be amended.
What Does This Mean?
In New South Wales, surcharge purchaser duty (8%) and surcharge land tax (2%) is payable on residential land by foreign persons.
The law stipulates that:
1. A trustee of a discretionary trust is deemed to be a "foreign person" if the terms of the trust do not specifically prevent a foreign person from being a beneficiary of that trust.
2. That is, a trustee who is deemed to be a "foreign trustee" will pay an additional 2% in land tax in New South Wales from the 2018 land tax year onwards and could end up paying transfer duty of up to 15% in New South Wales on the dutiable value of any residential land purchased in New South Wales.
3. If the terms of the discretionary trust prevent a foreign person from being a beneficiary, then the trustee will not be a "foreign trustee" for the purposes of surcharge purchaser duty and surcharge land tax.
Is My Trust Affected?
You will need to review your discretionary trust to determine whether the terms of your trust do not specifically prevent a foreign person from being a beneficiary of that trust.
In short, if the trustee of your trust is deemed to be a “foreign trustee”, it will render the trust liable to pay surcharge land tax and surcharge purchaser duty.
What can I do?
You can engage us to draft a Deed Amending Trust Deed to:
1. prevent a foreign person from being a beneficiary of the trust (no foreign beneficiary requirement); and
2. provide that any clause preventing a foreign person from becoming a beneficiary cannot be amended to allow a foreign person to be a beneficiary at a later time (no amendment requirement).
What are the Benefits of Amending the Trust Deed?
Amending your trust deed as set out above:
1. will prevent your trust from inadvertently attracting liability for surcharge land tax and surcharge purchaser duty which is otherwise payable by a "foreign trustee".
2. should render you eligible to seek a refund from Revenue NSW if you have already paid surcharge land tax or surcharge purchaser duty on the basis that you are a “foreign trustee”.
Please contact our office if you would like us to assist you in reviewing your Deed and drafting a Deed Amending Trust Deed if required.
