NSW Property Surcharge on Discretionary Trusts

If you have a Discretionary Trust (commonly known as Family Trust) and you have residential properties located in NSW within your Trust, then we suggest that you read this article in full.

The NSW Government has recently made changes to the definition of “foreign persons” for the purposes of assessing duty and land tax liabilities. If you have a Discretionary Trust then you are likely to be caught by this new definition. This is due to the fact that the typical trust setup in Australia usually contains a very wide class of beneficiaries which covers non-resident beneficiaries (such as grandparents, siblings and cousins living or residing overseas). Therefore, if you have existing Discretionary Trusts with a residential property, we recommend the Trust Deed be reviewed and amended to remove the foreign person (if applicable). Australian citizens are not considered foreign persons, unless your Australian citizenship rights have been removed due to some other reasons.

The surcharges are:

  1. Effective from 21 June 2016, any new residential property purchased by a Discretionary Trust with foreign persons will be subjected to an extra 4% duty on the purchase price;
  2. Effective from 31 December 2016 and every 31 December each year going forward, any Discretionary Trust with a residential property is subjected to the foreign person rule and will be liable for an extra 0.75% land tax cost on the unimproved land value of the residential property.

In summary, if you are looking to set up a Discretionary Trust to purchase a residential property or your current Trust holds a residential property in NSW in the Trust, please contact us immediately so we can work to help you save and avoid paying the surcharges.

Similar surcharges are also applicable in other states (i.e. Victoria).

For our clients with Discretionary Trusts that may be caught by the surcharges we will contact you directly in the coming months.

Any questions please do not hesitate to contact your Client Manager.