Exclude foreign beneficiaries from your NSW Trust before it’s too late!

If you have a discretionary trust that owns property in NSW, you may now have to pay more land tax in 2021 – unless you take action NOW!

The NSW Government introduced new laws[1] which assume your discretionary trust has foreign beneficiaries unless you specifically exclude them from benefitting.

That means any discretionary trust holding land in NSW could find itself paying the extra surcharge land tax on any land holding, and extra surcharge duty on buying property. 

Surcharge land tax and surcharge stamp duty are not cheap. For example:-

Surcharge Stamp Duty on a $750,000 residential property with 100% foreign interest[2]

  • Normal stamp duty: $29,085
  • PLUS surcharge purchaser duty: $60,000
  • Total duty: $89,085

Surcharge Land Tax on a $750,000 residential investment property[3]

  • Normal land tax: $356
  • PLUS surcharge land tax: $15,000
  • Total land tax: $15,356

Those surcharge amounts are meant to be paid by foreigners investing in Australia.

If you have a trust that does not own any NSW property, and is not likely to buy any in the near future, you can relax for now. 

In our view, these changes now increase the scope of those surcharges beyond what is reasonable.

It is not right that trusts that clearly do not involve or benefit foreign investors should be treated this way.  Australian families who own property should not have to pay these surcharges, which were originally aimed only at foreign investors.

Fortunately, there is a way out of this.  That is by amending your trust deed to explicitly exclude foreigners as beneficiaries.  If you do this right, your trust will not have to pay surcharge land tax or stamp duty.

However, you need to act fast, because the amendment must be done before 31 December 2020. 

If not, your trust will be liable to pay surcharge land tax on property from 1 January 2021 and for the whole rest of that calendar year, (you cannot amend the trust deed during 2021 to change this; a 2021 amendment will only affect land tax in the 2022 calendar year).

It is important the exclusion is done in the right way, by:

  • Executing another deed (called a ‘Deed of Variation’);
  • Properly defining ‘foreign persons’ using the definitions under the Land Tax Act 1956 (NSW), the Duties Act 1997 (NSW) and the Foreign Acquisitions and Takeovers Act 1975 (Cth); and
  • Making clear the exclusion of those ‘foreign persons’ is irrevocable.

That Deed of Variation should then be uploaded to the ‘Land Tax Online’ portal run by Revenue NSW to let them know you have made the change.

(It is important to note that any testamentary trust setup under a Will after 31 December 2020 must also explicitly exclude foreign persons, or it will be subject to surcharges as well!)

If you need help to amend your trust deed before 31 December 2020, contact us on 1300 654 590.

[1] Under the State Revenue Legislation Further Amendment Act 2020 No. 14.

[2] https://www.apps09.revenue.nsw.gov.au/erevenue/calculators/surchargeduty.php

[3] https://www.apps09.revenue.nsw.gov.au/erevenue/calculators/landtax.php

The information contained in this post is current at the date of publishing – 16 December 2020

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