Amend your discretionary trust deed before 31 December 2019

Avoid NSW foreign duty and land tax surcharge

trustDiscretionary trusts that own 'residential land' in New South Wales or hold an ownership interest in a company or unit trust that owns residential land in New South Wales must amend their trust deeds to exclude foreign persons as beneficiaries before midnight on 31 December 2019, otherwise foreign land tax and duty surcharges may apply.

The New South Wales Parliament has proposed changes that (if enacted) will deem discretionary trusts to be 'foreign persons', unless the trust deed is amended before midnight on 31 December 2019 to: 

  • 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 is the case even if none of the eligible beneficiaries of a discretionary trust are foreign persons.

Why does this matter?
If a discretionary trust is deemed a 'foreign person', surcharge duty of 8% and surcharge land tax of 2% will be payable on any residential land in New South Wales acquired or owned by the trust since the surcharges were introduced in 2016.

The proposed changes will apply retrospectively, so that if a discretionary trust:

  • paid surcharge duty or land tax but amends its trust deed to permanently exclude foreign persons as beneficiaries before 31 December 2019, the trust may apply for a refund of the surcharge,
  • owns residential land in New South Wales but does not amend its trust deed to permanently exclude foreign persons as beneficiaries before 31 December 2019, the surcharge duty and land tax may apply for prior years since the surcharges were initially introduced in 2016.

Different transitional rules apply to testamentary trusts
These proposed rules will also apply should your discretionary trust acquire a direct or indirect interest in property in the future. If you intend to purchase property in NSW using your discretionary trust you should seek appropriate legal advice before doing so.

Please Note:
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. Specific legal advice should be sought on a case-by-case basis.

These proposed rules will also apply should your trust acquire property in the future. If you intend to purchase property in NSW with your discretionary trust you should seek appropriate legal advice before doing so.

What should you do?

  1. Arrange for the trust deeds of any discretionary trusts that own residential land in New South Wales or hold an interest in a company or unit trust that owns residential land to be amended, where necessary and appropriate, to satisfy the 'foreign person' exclusion requirements under the changes proposed by New South Wales Parliament. This is the case even if the trust deed previously satisfied the New South Wales foreign beneficiary requirements.
  2. Ensure any trust deed amendments are signed before midnight on 31 December 2019.
  3. Submit the trust deed and all variations to Revenue NSW for confirmation that the trust is not a 'foreign person' (although this does not have to occur before 31 December 2019).

It is imperative that you act immediately. Please contact Collins Hume in Ballina or Byron Bay on 02 6686 3000 or seek independent legal advice to discuss these proposed changes if you believe the proposed legislation will impact you.