Recently enacted legislation provides an exemption from surcharge purchaser duty and land tax in respect of NSW residential property held in discretionary trusts – but only if the trust satisfies certain requirements by 31 December, 2020.
Trustees of a discretionary trusts that are foreign persons or foreign trustees will be liable to pay surcharge purchaser duty and surcharge land tax on the acquisition and holding of NSW residential property. Recent amendments to the NSW Duties Act and Land Tax Acts mean that that the trustee of a discretionary trust is taken to be a foreign person or foreign trustee, and consequently assessed at surcharge rates, unless the trust prevents a foreign person from being a beneficiary.
To do this, the following requirements must be satisfied:
1. no potential beneficiary of the trust is a foreign person (the no foreign beneficiary requirement); and
2. the terms of the trust are not capable of amendment in a manner that would result in there being a potential beneficiary of the trust who is a foreign person (the no amendment requirement).
Discretionary trust deeds that comply with the above requirements before 31 December 2020 will be exempt from the surcharges in respect of interests in residential property acquired or held by the trust.
Refunds of previously paid surcharge purchaser duty and land tax can also be applied for, but only if the terms of the trust are amended in the aforementioned manner before 31 December 2020.
Acis’ Legal & Client Services Director, Emily Pritchard, said that Acis had already prepared more than 1,000 deeds of amendment for this purpose: “While we have seen many clients swiftly responding to these legislative changes, and are still seeing a steady stream of requests, we want to make sure that no firm ends up in a position where they, or their clients, are inadvertently paying surcharge rates of duty or land tax.
“It is important to note that the scope for foreign surcharges is potentially wider than just discretionary trusts owning NSW residential property. Discretionary trusts holding indirect interests in NSW property should also be considered.
“Trust deeds for discretionary trusts that hold units or shares in entities that own property should also be reviewed, and amended where appropriate, before the December deadline.”
Acis, Australia’s largest provider of business and investment structures and restructures, is encouraging review of all trust deeds for discretionary trusts that hold, or intend to hold, a direct or indirect interest in residential property in NSW.
Acis is offering an exclusive $200 credit against your firm’s first deed amendment until 31 December. Claim your credit now.
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- A trust that prevents a foreign person from being a beneficiary of the trust in this manner cannot distribute to foreign persons and this cannot be changed.
- As amendments of these types have the effect of changing the beneficiaries, specific duty/tax advice should be obtained prior to execution.
- "Discretionary Trust" can include any trust under which the trustee has discretions in relation to the distribution of income and capital. This could include hybrid trusts, capital protected trusts and some unit trusts.
- Revenue NSW requires that any named beneficiary who is a foreign person be deleted from the trust deed as a beneficiary (in additional to the requirements in this article) in order to exclude them.
Specific legal advice should be sought on a case-by-case basis.