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Critical changes for discretionary trusts holding residential land in NSW

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Amend trust deeds or pay extra tax.

Any discretionary trust that holds, or intends to hold, residential property in NSW must be reviewed in order to avoid the risk of paying additional land tax.


Note: An update regarding this Bill was released by the NSW Government on 13 December 2019:

“As the Bill has yet to be passed by the Parliament, the Government intends to extend this deadline to a later date, in 2020.”

See the full press release here. We will keep you updated as further information is released.


New legislation proposed by the NSW government will have the effect of deeming the vast majority of trustees of family trusts “foreign trustees” unless the beneficiaries under the trust deed are limited to specifically exclude foreign persons.

As an example, if the taxable value of residential land in NSW held by a discretionary trust is $1,000,000.00, and the trustee is deemed a foreign trustee, the proposed surcharge would add an additional $20,000.00 to the existing land tax liability.

It was initially advised that amendments be enacted by midnight on 31 December 2019.

The below details provide a broad overview of the changes. For more detailed advice on the legislation and how it affects you, please get in touch with us.

State Revenue Further Amendment Bill 2019 (NSW)

The State Revenue Further Amendment Bill 2019 (NSW) was introduced before the NSW parliament on October 22. Under this amendment, a trustee of a discretionary trust is deemed to be a “foreign person” in any circumstances where the terms of the trusts do not specifically prevent a foreign person from being a beneficiary. Currently, most trustees of discretionary trusts will fall under this definition.

This can have a great effect on the amount of tax paid by discretionary trusts owning residential property in New South Wales, as foreign persons are required to pay surcharge purchaser duty of 8%, and surcharge land tax of 2%.

Exemption from foreign beneficiary surcharge tax

An exemption from the above-mentioned surcharge purchaser duty and surcharge land tax for foreign trustees will only be given if:

  • the terms of the trust deed prevent a foreign person from being a beneficiary of the trust; and
  • 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.

These deed amendments should have been made by 31 December 2019 in order to qualify for the surcharge exemption. A discretionary trust deed that complies with these requirements may also be entitled to a refund of previously paid taxes.

What this means for you

If you have a discretionary trust deed that holds residential property in NSW, you are at risk of overpaying land tax and stamp duty if your trust deed is not amended.

If this affects you, or if you aren’t sure, get in touch with us now on 07 3223 6100 or email IanT@redchip.com.au to discuss your circumstances.

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