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crackdown on NSW land compliance – surcharge land tax and discretionary trusts

12 November 2019
greg peach chelyn murphy
Read Time 2 mins reading time

On 22 October 2019, the State Revenue Legislation Further Amendment Bill 2019 was introduced to the NSW Parliament. If this Bill is passed, then a discretionary trust is effectively deemed to be a “foreign person” unless its trust deed prevents (or is amended to prevent) foreign persons from being beneficiaries of the trust by 31 December 2019.

The effect of the proposed new laws will be that if a discretionary trust holds residential land in New South Wales and its trust deed does not prevent (or has not been amended to prevent) foreign persons from being a beneficiary of the trust, then it may be liable to pay surcharge land tax (currently 2 per cent) in addition to any land tax it is already liable to pay.

To “prevent” a foreign person from being a beneficiary of the trust, the trust deed of the discretionary trust must provide that:

  • no potential beneficiary of the trust is a foreign person (the “no foreign beneficiary” requirement); 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 (the “no amendment” requirement).

The NSW Commissioner of State Revenue issued a ruling in March 2017 allowing it to exempt discretionary trusts on a case-by-case basis from surcharge land tax (and/or surcharge purchaser duty) provided the relevant trust deeds were amended to exclude foreign beneficiaries within six months of the exemption being granted.

Once the new Bill is passed, then such exemption will likely be removed as “the Government considers that the end of 2019 allows sufficient time for any remaining trustees and their advisers to make necessary changes to trust deeds” (Victor Dominello in the Second Reading Speech of the new Bill).

To sum up, a discretionary trust that holds residential land in NSW will need to ensure its trust deed is amended by 31 December 2019 to comply with the “no foreign beneficiary” and the “no amendment” requirements referred to above.

Please contact us if you require our assistance in amending your trust deed, or if you require more detailed advice.

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crackdown on NSW land compliance – surcharge land tax and discretionary trusts

12 November 2019
greg peach chelyn murphy

On 22 October 2019, the State Revenue Legislation Further Amendment Bill 2019 was introduced to the NSW Parliament. If this Bill is passed, then a discretionary trust is effectively deemed to be a “foreign person” unless its trust deed prevents (or is amended to prevent) foreign persons from being beneficiaries of the trust by 31 December 2019.

The effect of the proposed new laws will be that if a discretionary trust holds residential land in New South Wales and its trust deed does not prevent (or has not been amended to prevent) foreign persons from being a beneficiary of the trust, then it may be liable to pay surcharge land tax (currently 2 per cent) in addition to any land tax it is already liable to pay.

To “prevent” a foreign person from being a beneficiary of the trust, the trust deed of the discretionary trust must provide that:

  • no potential beneficiary of the trust is a foreign person (the “no foreign beneficiary” requirement); 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 (the “no amendment” requirement).

The NSW Commissioner of State Revenue issued a ruling in March 2017 allowing it to exempt discretionary trusts on a case-by-case basis from surcharge land tax (and/or surcharge purchaser duty) provided the relevant trust deeds were amended to exclude foreign beneficiaries within six months of the exemption being granted.

Once the new Bill is passed, then such exemption will likely be removed as “the Government considers that the end of 2019 allows sufficient time for any remaining trustees and their advisers to make necessary changes to trust deeds” (Victor Dominello in the Second Reading Speech of the new Bill).

To sum up, a discretionary trust that holds residential land in NSW will need to ensure its trust deed is amended by 31 December 2019 to comply with the “no foreign beneficiary” and the “no amendment” requirements referred to above.

Please contact us if you require our assistance in amending your trust deed, or if you require more detailed advice.