Foreign person trust deed amendments: 31 December 2019 is the final deadline
You may need to amend a trust deed by 31 December 2019 to prevent extra duty or land tax being payable where the trustee owns residential land in New South Wales.
The NSW Government has proposed amendments to foreign person duty and land tax surcharges for discretionary trusts that may require trustees to amend their trust deeds before 31 December 2019.
The trustee of a discretionary trust that owns residential land in New South Wales is liable for surcharge purchaser duty and/or surcharge land tax where they are a 'foreign trustee'. A foreign trustee is a foreign person for the purpose of the duty and land tax surcharges. Foreign persons pay:
a duty surcharge of 8% on the dutiable value of land when they buy land; and
land tax surcharge of 2% of the land tax value of all residential land owned as at 31 December each year.
If an amendment has not previously been made to a trust deed to exclude foreign persons, an amendment must now be made to the trust deed before 31 December 2019 to ensure that there is no surcharge duty imposed on the trustee for any dutiable transactions that occurred prior to 31 December 2019, or any surcharge land tax liability for the 2017, 2018 and 2019 land tax years.
Revenue NSW has been sending out letters to land-owning trustees to advise them of the need to amend their trust deeds before 31 December 2019.
The proposed legislative amendments suggest that the Chief Commissioner's discretion outlined in Revenue Ruling G010 (G010) no longer applies. Under G010, where a trust deed was not amended prior to a dutiable transaction occurring or a land tax liability arising, the trustee could apply to the Chief Commissioner for an exemption to be granted on the proviso that an amendment was made within 6 months of the grant of the exemption.
If G010 no longer applies, a significant impact of the proposed changes is that it will be extremely important, when establishing a trust that is to acquire residential land, to ensure that the trust deed properly excludes foreign persons from benefiting from the trust.
More information on the foreign person surcharges can be found in this fact sheet.
Should you wish to discuss the potential implications for you or for your clients, please contact us.
The material in this article was correct at the time of publication and has been prepared for information purposes only. It should not be taken to be specific advice or be used in decision-making. All readers are advised to undertake their own research or to seek professional advice to keep abreast of any reforms and developments in the law. Brown Wright Stein Lawyers excludes all liability relating to relying on the information and ideas contained in this article.