If you have a Discretionary Trust that owns land in New South Wales or which may own land in the future, you need to act BEFORE 31 DECEMBER 2020 to amend your Trust Deed to avoid surcharge land tax and duty being applied.
The State Revenue Legislation Further Amendment Bill 2019 was enacted on 24 June 2020. The Bill contains provisions that have significant tax implications for Discretionary Trusts that own or intend to own land in New South Wales or through an ownership interest in a company or unit trust.
The Bill provides that a Discretionary Trust will be deemed a foreign person, and liable for foreign land tax and duty surcharges if the Trust includes foreign persons as beneficiaries of the Trust. To avoid these additional taxes and duties, the Trust must expressly exclude foreign persons as eligible beneficiaries of the Trust.
Why is this important?
Foreign persons who own or acquire residential land in New South Wales are currently liable to pay surcharge duty of 8% and surcharge land tax of 2%.
Most Discretionary Trusts are not liable to pay the surcharges because it is presumed that all the eligible beneficiaries of a Discretionary Trust are Australian Citizens unless declared to be foreign persons. The new legislation will reverse this approach so that all Discretionary Trusts from 24 June 2020 will be assumed to be a foreign person unless the Trust actively and expressly excludes foreign persons as eligible beneficiaries.
The most significant impact is that the law is ‘retrospective’. Retrospective means that the surcharge taxes will back date to when the surcharges were initially introduced in 2016. This means that a Discretionary Trust which already owns residential land may be liable to pay the last 4 years’ worth of surcharge taxes.
What can you do
You can avoid the surcharge or apply for a refund of any surcharge already paid if you review and amend your Trust Deed before 31 December 2020 in accordance with the legislation to:
- exclude all foreign persons as eligible beneficiaries of the trust; and
- prevent any variation or amendment to the exclusion provision, so that a foreign person cannot in the future be added as an eligible beneficiary.
The fact that a foreign person is an eligible beneficiary will be sufficient for the Trust to be deemed a foreign person by the State Revenue Office of New South Wales and liable for the surcharges.
The Discretionary Trust Deed should be amended even if:
- none of the currently eligible beneficiaries are foreign persons
- distributions are not being made to that foreign persons
- the Trust Deed had previously satisfied the foreign beneficiary requirements; and
- if the Discretionary Trust doesn’t currently own residential land
- Review your Trust Deed
- Amend your Trust Deed
- Sign the amendment before 31 December 2020
- Submit the Trust Deed together with all variations to the State Revenue Office of NSW for confirmation that the trust is not a ‘foreign person’.
Please note that this Bill only relates to Discretionary Trusts that own or will acquire residential land in New South Wales.
However, we recommend that all Discretionary Trusts be amended as similar amendments are being proposed or have been made in other States and Territories.
Chamberlains Law Firm can prepare a Deed of Variation for your Discretionary Trust Deed in accordance with the legislation to avoid being liable to pay the surcharges.