Surcharge Land Tax and Discretionary Trusts in NSW

Does your discretionary trust hold residential land in NSW? If so, 31 December 2019 is an important date for you.

The State Revenue Legislation Further Amendment Bill 2019 was introduced to the NSW Parliament on 22 October 2019. Once law, the effect of the new legislation is to deem a discretionary trust a foreign person for the purposes of Surcharge Land Tax unless its trust deed specifically prevents (or is amended to prevent) foreign persons from being beneficiaries of the trust by 31 December 2019.

In NSW Surcharge Land Tax (currently 2%) is levied on residential land owned by a foreign person in addition to any other land tax it is already liable to pay.

Why are discretionary trusts considered to be foreign persons for land tax purposes? Because every beneficiary that can potentially benefit from the trust is deemed to have the maximum percentage interest in the income or assets of the trust that may potentially be distributed by the trustee to them. This covers all beneficiaries of the trust – not just those beneficiaries who are specifically named. Therefore, if any beneficiary is a foreign person, the trust will be considered foreign for land tax purposes. Depending on the definition of ‘beneficiary’ in your trust deed, this might include a British cousin, a company incorporated in Singapore that your uncle owns shares in or a foreign charity.

At present, the NSW Commissioner of State Revenue exempts discretionary trusts from Surcharge Land Tax on a case-by-case basis, provided the trust deed is amended to prevent foreign persons from benefitting within 6 months of the exemption being granted. It is likely this exemption will be removed with the passing of the new Bill into law.

What can I do to prevent Surcharge Land Tax from applying to my trust?

We can help prevent Surcharge Land Tax from applying to your trust by amending your trust deed to exclude foreign beneficiaries for just $900 + GST. We know that you might be worried about amending your trust deed. Rest assured that we are trust and tax experts. Our tailored documents minimise the risk of you experiencing any unexpected consequences as a result of the changes to your deed.

If you fail to confirm changes to your trust with Revenue NSW by 31 December 2019, your discretionary trust may be assessed as a foreign trust and be liable for Surcharge Land Tax – a liability that would be applicable to both future and prior year land holdings.

To amend your trust deed, call us on 1300 654 590 to discuss how we can help you or complete the form below and we will contact you to discuss your discretionary trust deed.

The information contained in this post is current at the date of publishing – 27 November 2019

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