Do you have a Family Trust with residential property in it? Urgent action required

In 2016 new rules were introduced in NSW to make “foreign persons” liable for surcharge purchase duty (an additional 8% stamp duty) on the acquisition of residential property in NSW, as well as surcharge land tax (an additional 2% land tax) for any residential property in NSW owned as at 31 December each year.

A discretionary trust can be a “foreign person” just by having a potential beneficiary who is a foreign person.  Potential beneficiaries of family trusts are generally very broadly defined in trust deeds, so it is very common that there are one or more potential beneficiaries who are foreign.  Where this is the case, the trustee will be liable for foreign purchaser surcharge if the trust acquires residential property in NSW, and foreign person land tax surcharge on residential property it holds in NSW.

We’ve discussed land tax surcharge in previous newsletters, so many family trust deeds will have already have been amended to specifically exclude foreign persons from benefiting.

Revenue NSW released a revenue ruling with effect from 13 September 2017, however, that clarified the need for such an amendment to be made on an irrevocable basis.  A subsequent practice note issued in July 2018 provides that where an amendment to a trust deed was made before 19 September 2017, the amendment would be accepted without the irrevocable clause for dutiable transactions that occur on or before 31 December 2018, and for surcharge land tax for the 2018 land tax year.

The State Revenue Legislation Further Amendment Bill 2019 (NSW) proposes to essentially give legislative effect to the revenue ruling.  The Bill allows for exemptions and refunds of surcharge purchaser duty and surcharge land tax, provided that the trust deed is amended before midnight on 31 December 2019.

If you have residential properties held through a discretionary trust and either:

  1. have not had the deed amended to prevent a foreign person from being a beneficiary, or
  2. your deed was amended for this purpose but not on an irrevocable basis,

You should urgently seek advice in relation to this with the aim of implementing any amendment no later than 31 December 2019.

If you have concerns about your specific circumstances please contact us to discuss as soon as possible.