Amend NSW Discretionary Trusts before 31 December 2019 to avoid the trust being deemed a Foreign Trust under proposed legislation

The State Revenue Legislation Further Amendment Bill 2019 was introduced to NSW Legislative Assembly on Tuesday 22 October 2019.

Contained within the Bill are provisions regarding the liability of foreign trustees of discretionary trusts for foreign surcharges. The Bill provides that a trustee of a discretionary trust is taken to be a foreign trustee if the terms of the trust do not explicitly prevent a foreign person from being a beneficiary. In this case the trustee will be liable for surcharge purchaser duty on the transfer of land as well as for land tax purposes. The current surcharge purchaser duty is eight per cent and surcharge land tax is two per cent.

Importantly, to not fall within the definition of a foreign trustee, the terms of the trust deed must not only prevent a foreign person from being a beneficiary under the trust but such an exclusion must also be irrevocable.

Transitional clauses have been included which provide for exemptions and refunds when discretionary trusts are amended before the end of 2019. The transitional provisions also have retrospective effect to the commencement of surcharge purchaser duty on 21 June 2016. As a result, trustees who incurred a duty liability prior to the commencement of this bill will be able to obtain relief.

There will also be a flow on effect to discretionary testamentary will trusts. The trustee in these circumstances will generally not have the legal capacity to amend the deed after the deceased has passed away. Transitional clauses are intended to be included to provide that if an individual passes away before, or within two years of the commencement of the new provisions, and they were not a foreign person at death, the trustee of a discretionary trust created pursuant to their will, will not be a foreign trustee, even though there is no clause specifically excluding this in the trust’s deed.

If the legislation is passed, it will be important for many individuals to revisit their wills to ensure discretionary testamentary trusts created pursuant to their will are not deemed to be foreign trusts.

Please contact us, if you have any questions or would like assistance in amending your trust’s deed or your will so as not to inadvertently deem the trustee to be a foreign trustee for duties and land tax surcharge purposes.

Allison Bruce
Principal Lawyer
T +61 2 6041 0701
E: abruce@ha.legal

Anthony McFarlane
Principal Lawyer
T +61 2 6041 0702
E: amcfarlane@ha.legal