Australia: Foreign persons land tax surcharge and discretionary trusts in NSW

IN BRIEF - TRUSTEES SHOULD CONSIDER IMPACT OF REVENUE RULING G010

The New South Wales State Government has changed stamp duty and land tax regimes to impose a surcharge on foreign persons for both duty and land tax with respect to residential premises.

REVENUE RULING G010

The Office of State Revenue takes the view that a foreign person means a person who is deemed to be a foreign person within the meaning of the Foreign Acquisitions and Takeovers Act 1975.

The Office of State Revenue, in Revenue Ruling G010 issued on 1 March 2017, has taken the view that where a prospective beneficiary to whom a trustee has a discretion to distribute income or property is a foreign person, that person is deemed to have the maximum percentage in income or property with respect to which the trustee may exercise a discretion.

Therefore, unless there is a limit to a foreign person's entitlements under a discretionary trust of less than 20%, the foreign person would be deemed to hold a substantial interest and therefore the surcharge will apply.

Where a trustee has wide powers to distribute, if any potential beneficiary is a foreign person, the trustee may be liable for the land tax surcharge even if foreign persons do not actually receive income or capital.

However, the Chief Commissioner of State Revenue has a discretion to give retrospective effect to amendments to trust deeds which will remove the power to make distributions to foreign persons. The trust deed must be amended to gain the benefit of this exemption.

CONSIDER AMENDING TRUST DEED IN RELATION TO FOREIGN PERSONS

Therefore, where a discretionary trust holds real estate, the trustee should urgently consider amending the trust deed to preclude any distributions to foreign persons or at least only allow distributions to just below the threshold for a substantial interest to avoid an unwanted and unexpected additional land tax liability.

Of course, where there may be foreign persons who otherwise would be a beneficiary if the trust deed is amended as set out above, there may need to be various estate planning measures that need to be undertaken to cater for this on the death of a person effectively controlling the trust.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.