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Change to NSW Duty and Land Tax Surcharges: What does it mean for Discretionary Trusts?

Since June 2020, the State Revenue Legislation Further Amendment Act stipulates that a trustee owning residential property in NSW will be considered a foreign person and hence subjected to foreign surcharges, if the trust deed does not explicitly prevent a foreign person from becoming a beneficiary.

If you are a trustee of a discretionary trust, you can amend the trust deed to include the “no foreign beneficiary” and “no amendment requirement” provisions. This allows you to claim an exemption and refund for any foreign surcharge incurred on or before 24th June 2020.

From 1 January 2021, any discretionary trust in NSW that does not irrevocably exclude foreign beneficiaries will be deemed to be a ‘foreign person’. Two of the important implications that arise out of this change are:

  1. The NSW government can charge foreign person surcharge on any stamp duty paid for acquisition of properties; and

  2. Foreign land tax surcharge may also be imposed on any existing properties held under the trust, which may also be applied retrospectively.

It is important to note that land tax surcharge will accrue every year if the trustee does not effect this irrevocable exclusion of foreign beneficiaries. Therefore all trustees of discretionary trusts should review their trust deeds if they have not done so already. CMI Legal has assisted many trustees over the past 2 years in keeping their trust deeds updated so to avoid potential implications arising in the future.

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