One of the benefits of discretionary trusts is just that, they are discretionary. They are almost always drafted so that the range of potential beneficiaries is as wide as possible. The new foreign person land tax surcharge and foreign person surcharge purchaser duty in New South Wales mean that your family trust may now be deemed a foreign person.
If this is the case, any property owned by the trust will pay an additional 0.75% of the unencumbered property value in land tax and no threshold will apply. If a trust is deemed a foreign person this will mean that on acquiring any new land the trust will pay an additional 4% of the purchase price in surcharge purchaser duty. On a $1,000,000.00 purchase, stamp duty is $40,510.00, if that purchaser is deemed foreign, an additional $40,000.00 surcharge is payable, for a total of $80,510.00.
It is important that you determine from this land tax year onwards whether or not your trust will be deemed a foreign person as if this is found out later by the Office of State Revenue your land tax assessments may be reassessed in the future and back payments, with interest, may be payable.
If any potential beneficiary of your trust is a foreign person (not an Australian citizen and not resident in Australia for 200 days out in the previous year) then the trustee will be liable for surcharge land tax on all New South Wales property held by the trust. This is the case even where that potential beneficiary has never received a distribution from the trust and may not ever receive a distribution in the future.
To have your family trust reviewed to determine if it is deemed a foreign person for the purpose of the new land surcharges, contact Dunwoodie Legal.
The Chief Commissioner of State Revenue, in recognition of the foreign person provisions targeting a number of discretionary trusts, has allowed discretionary trusts to make retrospective amendments to trust deeds which remove the trustee’s power to make distributions to foreign persons. This is a welcome relief for a number of discretionary trusts. However, great care must be taken to ensure that any such amendment does not constitute the resettlement of a trust which may trigger substantial CGT and stamp duty.
If you are considering an amendment to your discretionary trust, make sure you get advice on the consequences of doing so first.