NSW foreign duty and land tax surcharge – still time to amend your discretionary trust deed20 July 2020 Topics: Duty, payroll tax and land tax, Private tax and GST rulings, Special purpose trust deeds and variation strategies
Discretionary 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, otherwise foreign land tax and duty surcharges may apply.
The deadline to amend your trust deed has been extended to 31 December 2020 (previously 31 December 2019).
New South Wales now deems discretionary trusts to be ‘foreign persons’, unless the trust deed is amended before midnight on 31 December 2020 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. This can also be the case where the discretionary trust is a shareholder or unitholder in a company or unit trust that owns the residential land.
‘Residential land’ for these purposes has a wide meaning. The surcharges apply to vacant or substantially vacant land (including farming property) that is zoned for residential purposes.
These new changes 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 2020, 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 2020, 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.
What should you do?
- 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 these recent changes by New South Wales Parliament. This is the case even if the trust deed previously satisfied the New South Wales foreign beneficiary requirements.
- Ensure any trust deed amendments are signed as soon as possible to avoid missing the 31 December 2020 deadline.
- Submit the trust deed and all variations to Revenue NSW for confirmation that the trust is not a ‘foreign person’.
Cooper Grace Ward can amend a discretionary trust deed to satisfy the ‘foreign person’ exclusion requirements for $440 including GST. Please complete the application form and send it as soon as possible to firstname.lastname@example.org together with a copy of the trust deed and all variation and change of trustee deeds.
If you have any questions about the surcharge provisions or amending your trust deed, please contact a member of our team.