Trustees of discretionary trusts that hold real property in New South Wales must urgently review their trust deeds in light of the extension of the definition of ‘foreign trustees’ for the purposes of transfer duty and land tax.
The practical consequence of the State Revenue Legislation Further Amendment Bill 2019 is that a trustee of a discretionary trust will now be deemed to be a “foreign person” if the terms of the trust deed allows foreign persons to be beneficiary.
Foreign Trustee Surcharge and Land Tax
A discretionary trust which is a “foreign person” will attract the higher rates of surcharge purchaser duty (additional 8%) and surcharge land tax (additional 2%) in relevant circumstances.
The consequences of these changes can be averted (and refunds of any amounts already paid pursuant to the changes obtained) if the trust deed is amended to the following effect:
- The terms of the trust deed prevent a foreign person from being a beneficiary; and
- 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.
The revised deadline for when amendments must be made is yet to be confirmed, but steps to review and amend (where necessary) should be taken as soon as possible.
Importantly, the question of whether to amend will need to be given careful consideration in terms of the broader distribution and tax strategy for the trust and associated entities. Indeed, there may some circumstances where the exclusion of foreign persons as beneficiaries will not be appropriate.