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Amend Trust Deed by End of 2019 to Refund Surcharge Duties and Taxes from Purchasing NSW Residential Properties

It is well known that in New South Wales, foreign persons purchasing residential land are liable to surcharge stamp duty (8%) and surcharge land tax (2%).

Lots of family trusts (or discretionary trusts) will hold property, but the terms of the trust might not have placed limitations on the residential status of beneficiaries. In respect to the land tax and stamp duty, whether a trustee is a foreigner will be determined by the residential status of the beneficiary, and a foreign trustee will need to pay extra stamp duty and land tax. If you are a trustee of a discretionary trust, and you have purchased or intend to purchase residential property for the trust, you should be aware of such legal changes.

How to determine a family trust is a foreign trust or not?

1.         Whether the trustee itself is a foreign person or not;

2.         Whether any beneficiary of the trust is a foreign person:

a.         If the trust deed does not exclude foreigner as a possible beneficiary, the trustee will be considered as a foreigner.

b.         If the trust deed does exclude any foreigner as a possible beneficiary, the trustee will not be considered a foreigner.

If the trustee is a foreign trustee, since the 2018 Land Tax year, the trustee will pay additional 2% land tax surcharge while using this family trust to purchase a NSW residential property, and will trigger the extra stamp duty up to 8% (total up to 15% plus). In addition, as a foreign trust, it will be monitored by FIRB (Foreign Investment Review Board), including being prohibited from buying existing residential properties and having to pay FIRB application fees.

According to the State Revenue Legislation Further Amendment Bill 2019 (NSW), when trustees purchase residential properties for the trust, exceptions or refund of surcharge stamp duty and surcharge land tax are available under these circumstances:

-           The terms of the trust deed prevent foreign persons from becoming beneficiaries; and

-           The terms of the trust deed does not allow the terms to be amended such that foreign persons can become beneficiaries after the amendment.

If your trust deed contains these provisions, you as the trustee will not be considered as a foreign person, and you may avoid paying surcharge duties and taxes when purchasing residential properties.

If you have paid surcharge stamp duty and land tax as a foreign trustee who purchased residential property in NSW, and you have already amended the trust deed as above, you are able to apply for refund from Revenue NSW for the surcharge.

If you have paid surcharge stamp duty and land tax as a foreign trustee who purchased residential property in NSW, and you have NOT amended the trust deed as above, you will need to amend the trust deed by 31 December 2019 in order to benefit from the new arrangements to apply for refund.

Even if you have not purchased residential properties as a trustee for the trust, you should also review your trust deed to ensure that you will not be liable to surcharge duties and taxes should you purchase residential properties in the future.

If you are not sure of the arrangements in your trust deed with regards to the residential status of beneficiaries, and whether or not foreign persons are allowed to be beneficiaries, you should consult your lawyer to ensure that trust deeds that may require amendments are amended by 31 December 2019.

Please note: The content of our publication is intended for general information purposes only, and should not be construed as legal advice on any matter. Please contact our firm for discussion of your particular circumstances.