Surcharge Land Tax on Discretionary Trusts
The State Revenue Legislation Further Amendment Bill 2019 contains provisions which clarify when a trustee of a discretionary trust is liable for surcharge land tax.
Currently foreign persons acquiring residential property in NSW on or after the 21 June 2016 are liable to pay a 8% surcharge in addition to the usual duty payable on purchase. Plus an additional surcharge of 2% in land tax.
Foreign persons is defined in within the meaning of the foreign acquisitions and takeovers act 1975 and the foreign acquisitions and takeovers regulation 2015.
How does this effect discretionary trusts? a foreign trustee will be liable to pay surcharge transfer duty and surcharge land tax on the acquisition and holding of an interest in residential property owned by the trust for which it is trustee in NSW.
A trustee of a discretionary trust is taken to be a foreign trustee (and so is liable for surcharge purchaser duty as the transferee of residential land) if the terms of the trust do not prevent a foreign person from being a beneficiary. If the terms of the trust prevent a foreign person from being a beneficiary, the trustee is not a foreign trustee for surcharge purchaser duty purposes.
Discretionary trust which currently hold, or intend to hold residential property in NSW need to have their deeds reviewed and where required
- exclude all foreign persons as eligible beneficiaries
- prevent any amendment to the exclusion of foreign persons as beneficiaries, so that the exclusion is permanent and irrevocable.
This should be done even if none of the eligible beneficiaries of the discretionary trust are foreign persons.
