In May 2017 we brought to your attention major changes to Discretionary Trusts as to how assets of Discretionary Trusts may be taxed or dealt with. Extended on two occasions, the NSW Government has announced these changes now come into effect as of midnight 31 December 2020.
These new taxes and duties arise from major legislative changes to the Duties Act 1997 (NSW) and Land Tax Act 1956 (NSW) that may result in your family trust attracting additional stamp duty on real estate purchases and additional annual land tax on real estate holdings.
Under these two acts, foreign trusts acquiring residential land must pay Surcharge Purchaser Duty of 8% (in addition to the purchaser duty payable on the purchase) and foreign trusts who own residential land must pay Surcharge Land Tax of 2% (in addition to 1.6% land tax rate).
As every discretionary trust has a class of beneficiaries which includes foreign persons, every discretionary trust is a ‘foreign trust’ as defined under the Foreign Acquisitions and Takeovers Act 1975 (Cth).
Many of you acted quickly and instructed us to amend your trust deeds so that the Surcharge Purchaser Duty and Surcharge Land Tax did not apply to your family trusts. You also instructed us to provide evidence to Revenue NSW by 31 December 2019 that your family trusts exclude foreign persons.
If you are yet to amend your family trust deeds, you should consider whether to amend them before 31 December 2020 to irrevocably prohibit foreign persons from benefitting. If the trust deed is not amended, the trustee will be considered a foreign trustee and:
- land tax surcharge (currently 2% of the unimproved value of the land) will apply annually on the residential property in NSW held as at 31 December of each year;
- land tax surcharge will apply for the 2017, 2018, 2019 and 2020 land tax years; and
- surcharge purchaser duty (8% of the market value of the property) will apply to the purchase of residential property in NSW.
This amendment to your trust deed will not trigger stamp duty or capital gains tax.
Please contact Tim Arvanitis (tim@antunes.com.au) or Stefan Stojkovic (stefan@antunes.com.au) if you have any questions or if you wish to discuss further on 02 9964 0499.
The articles on this website comprise legal general information and not legal advice. The general information presented here must not be relied upon without legal advice being sought. In the event that you wish to obtain legal advice on the contents of this general information you may do so by contacting our office or your existing solicitor.