18 Dec Important Update for Discretionary Trust Deeds
The NSW government recently introduced a bill whereby all Discretionary Trusts may be deemed to be foreign trusts, regardless of whether they have any foreign connection or not.
This has two significant consequences:
If the trust purchases any residential property in NSW, it will pay an additional 8% Purchasers Duty Surcharge on top of the normal Stamp Duty paid on a purchase; &
Whilst ever NSW residential property is held by the trust, the trust will pay a 2% Land Tax Surcharge per year, in addition to the normal Land Tax payable.
However, these will not apply if the trust deed is amended (originally prior to 31 December 2019, however this date has now been deferred to early 2020, the actual date to be announced soon) provided that there can be no distribution to a foreign person, and to provide that such prohibition cannot be revoked.
If your family trust owns land in NSW or you are intending to purchase property in your trust we recommend you review your trust deed to check whether foreign persons are specifically excluded and coordinate an amendment of your trust deed to exclude foreign beneficiaries, which will remove the trusts liability for the surcharge. In our experience it is unlikely that your trust deed excludes foreign persons.
Specifically, the trustee of a Discretionary Trust will potentially be subject to Purchasers Surcharge Duty and Land Tax Surcharge unless:
The terms of the Trust Deed prevent a foreign person from being a beneficiary of the trust (no foreign beneficiary requirement); &
The clause preventing a foreign person becoming a beneficiary cannot be amended to allow a foreign person to be a beneficiary at a later time (no amendment requirement).
Notwithstanding the Bill is yet to be enacted, Trustees should act now and consider amending their Trust Deeds to avoid the risk of significant surcharge liabilities.
The Bill also has a retrospective effect as the proposed changes will apply to acquisitions of land on and from 21 June 2016.
There will also be a flow on effect to discretionary Testamentary Trusts established by a Will. While the Bill contains transitional clauses, where an individual passes away before, or within two years of, the commencement of the new provisions, this is a good time to have a general review of your testamentary positions.
Please call your Forsythes accountant on 02 4926 2699 if you have any questions regarding these changes.