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Are trusts affected by the SA stamp duty surcharge for foreign purchasers of property?

By Riley Jones

South Australia now has a stamp duty surcharge for foreign purchasers of property … but it’s not as bad as we thought!

After some drama in the South Australian Parliament (including having to withdraw the original Bill due to it also containing their proposed (and very unpopular) State-based bank levy), South Australia finally passed their own version of a stamp duty surcharge for foreign purchasers of real property on 12 December 2017. South Australia joins New South Wales, Victoria and Queensland in the foreign surcharge club, and Western Australia is soon expected to follow suit.

Importantly, although the legislation originally appeared quite broad, Revenue SA has since provided guidance about how it will implement it, and it now looks like it will not operate as broadly as the equivalent legislation in some other States, at least in relation to discretionary trusts (although, on the downside, the surcharge rate has increased from what the Government originally proposed).

When will the foreign ownership surcharge apply?

From 1 January 2018, foreign persons or foreign trusts that acquire an interest in residential land in South Australia are required to pay a foreign ownership surcharge (in addition to the regular stamp duty payable) of 7% of the value of the interest in residential land.

Which trusts will be caught by this new measure?

Where the beneficial interests of a trust are fixed, a trust will be a foreign trust where a beneficial interest of 50% or more of the capital of the trust property is held by one or more foreign persons.

A discretionary trust will be a foreign trust where one or more of the following is a foreign person:

  • a trustee;
  • a person who has the power to appoint under the trust;
  • an identified object under the trust; and 
  • a person who takes capital of the trust property in default.

However, according to the guidance provided by Revenue SA, it appears that having a foreign beneficiary (or ‘object’) of the discretionary trust will only make the trust a ‘foreign trust’ if they are specifically named in the deed:

"A person who is an identified object under the trust must be identified in the trust deed by name. The term ‘identified as an object’ is not a blanket reference to a class or range of beneficiaries under a discretionary trust deed who are not identified by name.

Example

Courtney is an identified object of a discretionary trust and is not a foreign person.
Her husband, Colin, is a foreign person, but is not an identified object of the trust.
As Colin is not an identified object of trust, the trust is not a foreign trust.
This is the case even if the trust deed includes as objects a class or range of beneficiaries that Colin is a part of e.g. 'the spouse of Courtney'.

Example

The deed of the ABC Trust, a discretionary trust, provides that Dom, a foreign person, is an identified object under the trust. His wife, Donna, a further identified object under the trust, is not a foreign person.
As a foreign person, Dom, is an identified object under the trust, the discretionary trust is a foreign trust and the trust would be liable to pay a surcharge on an acquisition of an interest in residential land.

Similarly, a person who takes capital of the trust property in default must be identified in the trust deed by name. The term ’a person who takes capital of the trust property in default‘ does not extend to persons who are not identified by name in the trust deed but who may take capital of the trust property in default at a later time. Examples of taking capital of the trust property in default include taking capital of the trust property in default of appointment (i) at certain or regular times as may be required by a trust deed and (ii) prior to the ultimate vesting of the trust.

Example

The deed of the E&E Family Trust, a discretionary trust, provides that Evan, a foreign person, is a person who takes capital of the trust property in default at certain or regular times as required by the trust deed. His wife Ella, a person who takes capital of the trust property in default of appointment prior to the ultimate vesting of the trust, is not a foreign person.
As a foreign person, Evan, is a person who takes capital of the trust property in default, the discretionary trust is a foreign trust and the trust would be liable to pay a surcharge on an acquisition of an interest in residential land.

Do I need a special trust deed if I want to set up a discretionary trust to buy residential land in South Australia?

Probably not! In fact, it looks like the wording of the deed may not impact on the imposition of the surcharge at all. What matters is the identity of each of the trustee, the appointor, and the primary beneficiaries, generally at the time any such land is acquired.

That is, if the trustee, the appointor and the primary (i.e., named) beneficiaries are all Australian citizens or hold the relevant visas (e.g., permanent visas or special visas for New Zealand citizens), then the discretionary trust should not be a foreign trust for South Australian surcharge purposes, even if the primary beneficiaries have foreign relatives (who are also therefore ‘general beneficiaries’ of the discretionary trust).

However, if any one of the trustee, the appointor and/or the primary beneficiaries are “foreign” (as defined) then the trust will be a foreign trust (and amending the terms of the deed won’t change this). 

Editor: It should be noted that this article does not constitute legal advice and is based on Revenue SA’s current guidance, which may change in the future (including if a Court interprets these new provisions in a different way). If you are concerned about the surcharge being imposed, you should consider contacting Revenue SA directly or acquiring legal advice specific to your circumstances.