Is your discretionary trust liable for surcharge duty and land tax?

Peter Stewart

There is currently a bill before the NSW parliament that deems all discretionary/family trusts to be ‘foreign persons’.

The effect of this deeming is that any discretionary trust owning NSW residential land may be liable for a surcharge duty of 8% and/or a surcharge land tax of 2% where the trust has potential beneficiaries who are foreign residents.

Surcharge purchaser duty applies to acquisitions of NSW residential land by foreign persons, and surcharge land tax applies to foreign persons who are owners of residential land in NSW. Surcharge purchaser duty and surcharge land tax (together, the foreign surcharges) are payable in addition to any other duty or land tax payable.

For a discretionary trust, each beneficiary to whom the trustee has discretion to distribute the income or property is deemed to have the maximum percentage interest in the income or property over which the trustee may exercise a discretion to distribute.

To be exempt from the foreign surcharges, amendments must be made to discretionary (family) trust deeds to prevent potential beneficiaries that are foreign persons from receiving distributions as to income and/or capital under the trust. Any amendments made must also be irrevocable.

Whilst the bill’s impact is retrospective (back to 21 June 2016), the transitional provisions mean that the surcharge will not apply where the appropriate amendments to the trust deed are made prior to 31 December 2019.

Act now

If your trust holds or is likely to hold residential land and it has not been amended to exclude foreign beneficiaries, you should discuss this with Coleman Greig’s Commercial Advice team, as a matter of urgency.