Deadline to Amend Discretionary Trusts to Avoid Surcharge Duty and Tax
Implications for Discretionary Trusts
In 2019, the NSW Government proposed various changes to duty and land tax law in NSW which came into effect on 24 June 2020, known as The State Revenue Legislation Further Amendment Act 2020 (NSW) (“the Act”). The Act has significant implications for discretionary trusts, in particular, the proposed changes made it so trustees of discretionary trusts are assumed to be foreign trustees, and therefore real property owned by the trust would be subject to surcharge purchaser duty and land tax. A trustee would not be considered a foreign trustee where the Trust Deed expressly provided that:
- a foreign person was prevented from being a beneficiary of the Trust (‘no foreign beneficiary requirement’), and
- the clause preventing a foreign person becoming a beneficiary could not be amended to allow a foreign person to be a beneficiary in the future (‘no amendment requirement’).
The Act sets the deadline of 31 December 2020 for trustees of discretionary trusts to have their trust deeds reviewed and amended (if required) so as to avoid foreign persons surcharge duty/tax.
The Act has a retrospective effect to land acquisitions from 21 June 2016 (when surcharge liability was first implemented), and transitional provisions provide relief to those trusts who have paid surcharge duty/tax so long as the terms of the Trust Deed are amended prior to the 31 December 2020 deadline (and so long as a foreign person has not taken benefit from the Trust).
Amend your Discretionary Trust Deed
Note, trustees who are currently liable for surcharge duty and have entered into a transaction to acquire land that has not yet settled, must amend the terms of the Trust Deed on the earlier of the due date for payment of duty (usually the settlement date) and 31 December 2020 to avoid liability.
Surcharge purchaser duty is currently 8% (in addition to the duty otherwise payable) and surcharge land tax is 2% (in addition to the land tax otherwise payable).
Failure to amend by 31 December 2020 may have significant monetary consequences if your trustee owned, owns, or will own, land.
Fixed Fee Service
Roberts Legal are offering a fixed fee service for the preparation of a Deed of Variation to your discretionary trust for the required amendments as outlined above for $660.00 (incl. GST). Please contact us to have a Deed of Variation prepared.