Tax Alert: Action Required by 31 December 2018 for Discretionary Trusts Owning Residential Land in NSW

27 November 2018

Publications

The surcharges

As you may know, NSW has imposed a surcharge purchaser duty on foreign persons acquiring ‘residential-related property’.  This is currently 8% on the dutiable value of a residential-related property.  The surcharge is in addition to the duty payable on the transaction.

It has also imposed a surcharge land tax on foreign persons holding ‘residential land’.  This is currently 2%.  The surcharge is in addition to any land tax payable.

Discretionary trusts

Broadly, the effect of the surcharge purchaser duty and surcharge land tax legislation is that discretionary trusts that have even just one foreign person as a potential beneficiary are themselves treated as foreign persons.

Refer to our Tax Alert: Applying surcharge purchaser duty and surcharge land tax to discretionary trusts (November 24, 2016) for more details.

Amending discretionary trust deeds

The trust deeds of discretionary trusts that are currently holding, or going to acquire, ‘residential-related property’, or ‘residential land’ in NSW should be reviewed and amended (if necessary) to exclude any foreign persons as beneficiaries.

Revenue NSW’s current view is that any amendments to exclude foreign persons as beneficiaries must be irrevocable.  It has indicated that it will not be satisfied that there is no scheme or arrangement to avoid tax where the amendment is not irrevocable (Revenue Ruling No. G 010 Version 2).

There is no requirement in the legislation that any amendment must be irrevocable.  Also it seems to us that the application of the general anti-avoidance provisions should depend upon the circumstances of any particular matter.

Nonetheless, Revenue NSW’s view is clear.  Accordingly, as a practical matter, it seems to us that any amendments should be irrevocable.

Amendments prior to 19 September 2017

Because Revenue NSW’s view about amendments needing to be irrevocable did not come out until 19 September 2017, deeds amended prior to then may not comply with Revenue NSW’s requirement that amendments be irrevocable.  These amendments should be reviewed, and if necessary further amended to make the exclusion of foreign persons irrevocable.  Revenue NSW is allowing these further amendments up to 31 December 2018 (Commissioner’s Practice Note No. CPN 004).

Recommended action

Accordingly, we consider that:

  • deeds should be reviewed and amended if necessary prior to acquiring residential related property/residential land;
  • deeds should be reviewed and amended if necessary prior to 31 December 2018 if the trust owns residential land;
  • deeds that have already been amended to exclude foreign persons as beneficiaries should be checked to see if the exclusion is irrevocable. If not, the deeds will need to be further amended.  This is particularly relevant to deeds amended prior to 19 September 2017.

How we can help

We can review discretionary trust deeds, consider and advise upon the resettlement issues, and amend the trust deeds as required.  Our fees for this work for each trust will generally be $990 (including GST).  Our fees may be lower than this if we are reviewing multiple deeds, or if we are only checking deeds that have already been amended to see if the exclusion of foreign beneficiaries is irrevocable.

We have an instruction sheet which we can send you if you would like us to review and/or amend any discretionary trust deeds.

For further information, please contact: 

Philip de Haan | Partner | +61 2 9020 5703 | pdehaan@tglaw.com.au

Yat To Lee | Senior Associate | +61 2 9020 5742 | ylee@tglaw.com.au