Do you intend to buy property as a trustee of a discretionary trust? If so, it is important to examine whether the trust deed protects you from foreign surcharges on duty and land tax.
Many Australian citizens and residents unknowingly incur foreign surcharges, facing additional transfer duty and land tax because their trust is deemed a foreign person for tax purposes.
How does this happen
Following 2020 amendments to the Duties Act 1997 (NSW) and Land Tax Act 1956 (NSW), a trustee to a discretionary trust is classified as a foreign person unless the trust deed:
- Removes all existing beneficiaries who are foreign persons;
- Prevents foreign persons from benefitting as potential beneficiaries; AND
- Provides that this exclusion is irrevocable, preventing any future amendments
Accordingly, the failure to explicitly (and irrevocably) include these necessary provisions means the trust is exposed to a significant risk of liability to foreign surcharges.
Why this matters
Even if the trust has never distributed to a foreign person and has no intention of doing so, it may still be subject to such surcharges if there is a mere possibility of such distribution. Since most discretionary trust deeds define beneficiaries broadly to allow for greater flexibility and tax planning, many trusts are likely to be caught by these surcharges.
How we can assist
- Thoroughly review the trust deed to ensure that it expressly (and irrevocably) accounts for foreign beneficiaries before you purchase a property
- Advise on necessary amendments thereafter to safeguard your trust from unnecessary surcharges and additional costs
If you or someone you know wants more information or needs help or advice, please call 02 9150 6991 or email [email protected]
Important Disclaimer: This content contains general information for reference purposes only. If you are looking to buy a property under trust, we strongly recommend obtaining professional legal advice tailored to your circumstances.