If you are a trustee of a discretionary trust, and you hold (or intend to hold) residential land in NSW in the trust, then it is important you are aware of foreign person surcharges which may inadvertently apply.

Foreign Person Residential Property Surcharges in NSW

In NSW, residential land held by foreign persons attracts an 8% surcharge purchaser duty and 2% surcharge land tax.

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.

Exemption from Foreign Person Surcharges

The trust deed needs to meet specific requirements in order to avoid the foreign person surcharges:

  1. The terms of the trust deed prevent a foreign person from being a beneficiary of the trust, and,
  2. 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.

This will prevent a discretionary trust from inadvertently attracting liability for surcharge duty and tax payable by a “foreign trustee”.

Action Required

  • If you shouldn’t be paying foreign person surcharges, have your trust deed reviewed, to ensure the two criteria above have been met
  • The terms of the discretionary trust must be 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.

For more information, contact us at Edney Ryan on (02) 9908 9888 or email legal@edneyryan.com.au.