New South Wales: Surcharge purchaser duty and surcharge land tax for discretionary trusts – 31 December 2020 deadline to amend trust deeds

Trustees of discretionary trusts holding NSW residential land (regardless of where the trust was established) may need to make urgent changes to their trust deed to avoid incurring surcharge purchaser duty and surcharge land tax. Surcharge purchaser duty is an additional duty charge, at a rate of 8%, which applies to acquisitions of NSW residential land by a foreign person. Surcharge land tax is charged at 2% on the taxable value of residential land owned by a foreign person.

Amending legislation which commenced on 24 June 2020 prescribes when a trustee of a discretionary trust is taken to be a foreign trustee, and therefore a foreign person. The updated legislation provides that a trustee will be regarded as a foreign trustee unless the trust prevents a foreign person from being a beneficiary of the trust. A discretionary trust is considered to prevent a foreign person from being a beneficiary of the trust if both of the two following requirements are satisfied:

  • no potential beneficiary of the trust is a foreign person; and
  • the terms of the trust are not capable of amendment in a manner that would result in there being a potential beneficiary of the trust who is a foreign person.

Under the transitional provisions, trustees of discretionary trusts have until 31 December 2020 to amend trust deeds in line with the updated legislation to avoid incurring surcharge purchaser duty and surcharge land tax. Furthermore, trustees that have already incurred these surcharges can apply for an exemption or refund if their trust deed is suitably varied before 31 December 2020. Birchstone Tax Law can assist if you or your clients require any assistance in this regard.

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