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Foreign Surcharges and Discretionary Trusts, the clock is ticking...

29 November 2019

The State Revenue Legislation Further Amendment Bill 2019 (“Bill”) proposes to amend the duties and land tax legislation so that all discretionary trusts are considered ‘foreign persons’ for duties and land tax surcharges unless the terms of the trust prevent a foreign person from being a beneficiary.

This affects trusts which have acquired residential property since 21 June 2016 or held residential property for a land tax year from 2017 onwards.

The Bill includes provision for surcharge purchaser duty exemptions and refunds when the terms of a discretionary trust have been amended before midnight on 31 December 2019 to prevent a foreign person from being a beneficiary.

A discretionary trust is considered to prevent a foreign person from being a beneficiary of the trust if (and only if) both of the following requirements are satisfied:

(a) no potential beneficiary of the trust is a foreign person (the no foreign beneficiary requirement),

(b) 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).

Under the transitional arrangements, the no amendment requirement does not apply to a trust that has already been amended to satisfy the no foreign beneficiary requirement immediately before the commencement of the section.

Surcharge purchaser duty is 8% and is in addition to any transfer duty.

The land tax surcharge rate is:

  • 0.75 per cent from the 2017 land tax year; and
  • two per cent from the 2018 land tax year onwards.

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This article is general information only and should not be relied on without obtaining further specific information.

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