Is your trust liable for surcharge duty or land tax? The impact of potential foreign beneficiaries.

23 Jan Is your trust liable for surcharge duty or land tax? The impact of potential foreign beneficiaries.

In October 2019, the State Revenue Legislation Further Amendment Bill 2019 was introduced to the NSW Parliament seeking to amend the treatment of acquisition duty and land tax for discretionary trusts with foreign persons as potential beneficiaries.

The proposed amendments to the Duties Act 1997 (NSW) and the Land Tax Act 1956 (NSW) would impose surcharge duty and surcharge land tax on discretionary trusts which acquire or hold land and do not irrevocably exclude foreign persons as beneficiaries of the trust. This is the case even though no foreign person may be presently entitled.

The bill, if passed, operates retrospectively and surcharge duty could be imposed on acquisitions occurring before the commencement of the new legislation. Similarly, surcharge land tax can be charged on land held by discretionary trusts in the 2017, 2018 and 2019 land tax years.

In order to prevent the trust being deemed  foreign and from incurring surcharge land tax and surcharge duty, the terms of the trust must meet the following criteria:

1. Foreign persons must be excluded from receiving distributions from the trust; and
2. The exclusion of foreign persons must be irrevocable.

The bill proposes a transitionary period whereby trusts which were amended before the later of 31 December 2019 and the commencement of the legislation would be exempt from the retrospective effect of surcharge land tax and duty rates. At the time of writing this article, the bill has yet to be passed by the NSW Parliament and there is still time to amend your trust deed to avoid the imposition of the foreign surcharge.

Revenue NSW has also indicated that it proposes to extend the transitionary period to allow for the amendment of trust deeds after the commencement of the legislation (given that the original 31 December 2019 deadline has lapsed and the bill is yet to be passed by parliament), however the extent of any further transitionary period remains unclear.

If you think that your discretionary trust may be affected by the proposed changes it is important to seek legal advice as soon as possible  to assess the impacts of the proposed legislation on the trust.

Harris & Company has assisted numerous clients with preparing amendments to trust deeds in light of the proposed legislation.

If you require advice in relation to amending your trust or would like further information regarding these changes, please contact Ian Smith (ismith@harrisco.com.au, (02) 9261 8533).