There is a proposed legislation before the NSW parliament seeking to amend legislation relating to stamp duties and land tax.

How does this impact Discretionary Trusts?

Under the relevant Acts, a foreign trustee will be liable to pay surcharge transfer duty and surcharge land tax (2%) on the acquisition of and holding an interest in residential property owned by the trust in NSW.

The proposal is such that a trustee of a discretionary trust is taken to be a foreign trustee unless the trust prevents a foreign person from being a beneficiary of the trust.

What this means practically?

The discretionary trust must ensure:

* No potential beneficiary of the trust is a foreign person AND

* The terms of the trust are not capable of amendment to result in a potential beneficiary of the trust who is a foreign person.

Essentially current or older discretionary trust deeds which own or may in the future own a residential property or an interest in a residential property need to be reviewed and if necessary amended to comply before before 31 December 2019!

This is not just yet law and it is unknown how the NSW Office of State Revenue will interpret compliance with these requirements.

Foreign Beneficiaries Other States

All other Australian States and Territories (except NT) have introduced foreign person surcharge duty for land tax. But the proposed legislative changes in NSW require a more restrictive foreign persons exclusion be included in the Trust Deed.

Contact your legal adviser as soon as possible if this applies to you.

For further information please refer to our friends at ACIS.

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