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Deadline may be looming for NSW trusts to cease to be a “foreign trust”

By James Shattock - NTAA legal team

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 Bill 2019 was recently introduced into the NSW Parliament, and if this Bill is passed in its present form, then trustees of discretionary trusts will only have until 31 December 2019 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.

That is, assuming that the above Bill becomes law, then it will not be possible as from 1 January 2020 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 may only have until 31 December 2019 for the trust deed for the trust to be amended to exclude foreign beneficiaries, so that the trust is not a “foreign trust”.

If requested, (and provided that your discretionary trust had been established through NTAA Corporate), we can now prepare a deed of variation in this regard for your trust. Please let us know as soon as possible if you want us to prepare a deed of variation to exclude foreign beneficiaries for your trust by completing our order form.

If your discretionary trust was not established through NTAA Corporate, then we recommend that you contact the supplier of the discretionary trust deed in relation to a deed of variation possibly being prepared for that trust. Independent legal and tax advice should also be sought in relation to your trust and trust deed as required.

Also, if you are considering establishing a new discretionary trust, which trust 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 requested, we can establish a discretionary trust using our “foreign exclusion” trust deed (which specifically excludes foreign beneficiaries).

Download the order form here.