Review all discretionary trusts now following changes to surcharge purchaser duty and surcharge land tax

Stop Press: If you are a trustee of a discretionary trust and you hold (or intend to hold) residential land in New South Wales in your capacity as trustee of that trust then you need to read this.

In New South Wales, surcharge purchaser duty (8%) and surcharge land tax (2%) is payable on residential land by foreign persons.

A trustee of a discretionary trust is deemed to be a "foreign person" if the terms of the trust do not specifically prevent a foreign person from being a beneficiary of that trust. If the terms of the discretionary trust prevent a foreign person from being a beneficiary, then the trustee will not be a "foreign trustee" for the purposes of surcharge purchaser duty and surcharge land tax.

Simply put, a trustee who is deemed to be a "foreign trustee" will pay an additional 2% in land tax in New South Wales from the 2018 land tax year onwards and could end up paying transfer duty of up to 15% in New South Wales on the dutiable value of any residential land purchased in New South Wales.

Under the the State Revenue Further Amendment Bill 2019 (NSW) an exemption from, and refunds of, surcharge purchaser duty and surcharge land tax payable in respect of residential land by the trustee of a discretionary trust will be given if:

• the terms of the trust deed prevent a foreign person from being a beneficiary of the trust (no foreign beneficiary requirement); and
• the clause preventing a foreign person becoming a beneficiary cannot be amended to allow a foreign person to be a beneficiary at a later time (no amendment requirement).

This will prevent a discretionary trust from inadvertently attracting liability for surcharge duty and tax payable by a "foreign trustee". However this transitional arrangement only applies if the terms of the discretionary trust are amended before midnight on 31 December 2019.

If you have already paid surcharge land tax or surcharge purchaser duty on the basis that you are a foreign trustee and if you amend your trust deed as above, then you should seek a refund from Revenue NSW. 

Key takeaways

• Review all discretionary trust deeds and amend it to satisfy the no foreign beneficiary requirement and no amendment requirement.
• Do this before midnight on 31 December 2019.
• See notice below on crackdown on land tax non-compliance.

STOP PRESS: Revenue NSW has through a media release acknowledged that as the State Revenue Legislation Further Amendment Bill 2019 will not be passed by the Parliament this calendar year (and the requirement under the Bill was for discretionary trust deeds to have been amended by midnight on 31 December 2019), "the Government intends to extend this deadline to a later date, in 2020. However, trustees are encouraged to amend their deeds by midnight 31 December 2019, if possible, to avoid incurring a land tax surcharge liability and having to apply for an exemption or refund."

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