What you need to know about new proposed legislation on the land tax payable by discretionary trusts holding residential property in NSW

By Craig Hong, Director at Hillhouse Legal Partners
| 3 min. read

Key takeaways

  • Any discretionary trust that holds, or intends to hold, residential property in NSW must be reviewed and potentially amended before the end of this calendar year in order to avoid the risk of paying additional land tax. 
  • New legislation proposed by the NSW government will have the effect of deeming all family trusts to be “foreign persons”, and therefore liable to pay additional land tax, unless the trust deed excludes foreign persons from being beneficiaries of the trust.
  • The planned changes can have a great effect on the amount of tax paid by discretionary trusts owning residential property in NSW, as foreign persons are required to pay surcharge purchaser duty of 8% and surcharge land tax of 2%.
  • Trust deeds must be amended by 31 December 2019 to remove the risk of being deemed a foreign trust and incurring additional land tax.

Any discretionary trust that holds, or intends to hold, residential property in NSW must be reviewed and most likely amended before the end of this calendar year in order to avoid the risk of paying additional land tax and duty.

New legislation proposed by the NSW government will have the effect of deeming the vast majority of trustees of family trusts “foreign trustees” unless the beneficiaries under the trust deed are limited to specifically exclude foreign persons and the possibility of the trustee adding foreign persons as beneficiaries in the future is removed.

As an example, if the taxable value of residential land in NSW held by a discretionary trust is $1,000,000 and the trustee is deemed a foreign trustee, the proposed surcharge would add an additional $20,000 to the existing land tax liability.

Amendments to the relevant trust deed(s)must be enacted by midnight on 31 December 2019.

The below details provide a broad overview of the changes. For more detailed advice on the legislation and how it affects you, please get in touch with us.

State Revenue Further Amendment Bill 2019 (NSW)

The State Revenue Further Amendment Bill 2019 (NSW) was introduced before the NSW parliament on October 22. Under this amendment, a trustee of a discretionary trust is deemed to be a “foreign person” in any circumstances where the terms of the trusts do not specifically prevent a foreign person from being a beneficiary. Currently, most trustees of discretionary trusts will fall under this definition.

This can have a great effect on the amount of tax paid by discretionary trusts owning residential property in New South Wales, as foreign persons are required to pay surcharge purchaser duty of 8% and surcharge land tax of 2%.

Exemption from foreign beneficiary surcharge tax

An exemption from the above-mentioned surcharge purchaser duty and surcharge land tax for foreign trustees will only be given if:

  • the terms of the trust deed prevent a foreign person from being a beneficiary of the trust; 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.

The Bill has yet to be passed by the Parliament. However, the NSW State Government has recommended that trustees amend their deeds by midnight 31 December 2019to avoid incurring a land tax surcharge liability and having to apply for an exemption or refund.

What this means for you?

If you have a discretionary trust deed that holds residential property in NSW, you are at risk of overpaying land tax and stamp duty if your trust deed is not amended by midnight on 31 December 2019.

If this affects you, or if you aren’t sure, get in touch with us now on 07 3220 1144 or email [email protected] to discuss your circumstances.

The information in this blog is intended only to provide a general overview and has not been prepared with a view to any particular situation or set of circumstances. It is not intended to be comprehensive nor does it constitute legal advice. While we attempt to ensure the information is current and accurate we do not guarantee its currency and accuracy. You should seek legal or other professional advice before acting or relying on any of the information in this blog as it may not be appropriate for your individual circumstances.