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Deadline has been extended for excluding foreign beneficiaries for NSW trusts

By James Shattock - NTAA legal team

NSW legislation was recently passed, which extends the deadline for NSW trusts to be amended to exclude foreign beneficiaries for 12 months, that is, until 31 December 2020.

There are laws in New South Wales which impose a stamp duty surcharge and, in some cases a land tax surcharge, on certain foreign purchasers of residential land in that state. These laws may extend to discretionary trusts. Specifically if any of the beneficiaries under a discretionary trust are “foreign” (as defined by the State Act), the trust could be deemed a “foreign trust” (and, therefore, possibly subject to stamp duty and/or land tax surcharges).

It had previously been possible for an existing discretionary trust deed to be amended so as to exclude any “foreign beneficiaries”, so that the trust would not then be subject to the stamp duty and/or land tax surcharges. NTAA Corporate has prepared deeds of variation in this regard for many discretionary trusts (which had been established through NTAA Corporate).

However, the State Revenue Legislation Further Amendment Act 2020 (NSW) was enacted on 24 June 2020, pursuant to which trustees of discretionary trusts only have until 31 December 2020 for the trust deed to be amended so that the trust ceases to be a “foreign trust” that is subject to the stamp duty and land tax surcharges. (As we previously advised late last year, it was originally proposed when this legislation was introduced as a bill that the trust deed would have to be amended in this regard by 31 December 2019, but this was subsequently extended.)

That is, it will not be possible as from 1 January 2021 for the trust deed for an existing trust to be amended to provide that the trust is not a “foreign trust”.

Therefore, if you have a trust that currently (or may in the future) hold residential land in New South Wales, you only have until 31 December 2020 for the trust deed for the trust to be amended to exclude foreign beneficiaries, so that the trust is not a “foreign trust”. It is also necessary for the trust deed to be amended to exclude foreign beneficiaries before the due date for payment of the stamp duty or land tax (in addition to being amended before 31 December 2020).

How can we help?

We can prepare a deed of variation for your clients' trusts (provided that the discretionary trust had been established through NTAA Corporate). If you would like us to prepare a deed of variation to exclude foreign beneficiaries for your trust, please complete this order form and email to us with an executed copy of the trust deed.

If your discretionary trust was not established through NTAA Corporate, then we recommend that you seek independent legal and tax advice in relation to your trust and trust deed as required. Please contact us if you would like us to provide a referral.

What about new trusts?

If you are considering establishing a new discretionary trust, which may hold residential land in NSW, then having regard to the above, you should first consider whether the trust deed should specifically exclude “foreign beneficiaries”. If so, simply indicate this by completing the relevant section on the online form and we will establish the discretionary trust using our “foreign exclusion” trust deed (which specifically excludes foreign beneficiaries). Log in to order a new discretionary trust here.