Does your Discretionary Trust currently own any real property?
Or is your current Trust intending to purchase residential property?
If so, the information below is important and urgent action is required before the end of the 2020 calendar year.
Back in November 2019, you may recall that we informed you that the New South Wales Government had introduced a Bill into Parliament which had the effect of classifying all Trusts as foreign trusts as at 1 January 2020, regardless of whether they have a foreign connection or not.
That Bill has now been passed and the State Revenue Legislation Further Amendment Act 2020 (the Act) received assent on 24 June 2020.
So what are the consequences of this Act and what can be done to avoid them?
The Act amends the Land Tax Act 1956 and the Land Tax Management Act 1956 to clarify that a Trustee of a Discretionary Trust is a foreign person if the terms of the Trust Deed do not contain a clause preventing a foreign person from being a beneficiary.
As a result:
1. If your Trust currently owns residential property in New South Wales – the Trust will be required to pay a 2% land tax surcharge in addition to the normal land tax payable for the 2018 onwards land tax year or 0.75% for the 2017 land tax year; and
2. If you intend to acquire residential property through your Trust – the Trust will pay an 8% stamp duty surcharge in addition to normal stamp duty payable on the purchase of residential property.
To avoid these surcharges, an amendment to your Trust Deed is required before the end of this calendar year to include provisions that:-
1. a foreign person cannot be a potential beneficiary of the Trust; and
2. the terms of the Trust Deed cannot be amended in a manner in which would result in there being a potential beneficiary who is a foreign person.
When should you take action?
Your Trust Deed will need to be amended before 31 December 2020 to ensure that the land tax and stamp duty surcharges are not applicable.
If you wish to update your Trust Deed to cover the above matter, please call Tony Lee and/or Anton Brokman on 02 9212 1099.
You may also wish to speak with your accountant to see whether the changes are appropriate having regard to your personal circumstances. If for instance there are beneficiaries of your Trust who reside overseas and are not Australian citizens, then this amendment may not be suitable.
If you are unsure as to whether your Trust Deed requires amendment, please feel free to contact us to discuss this further or email email@example.com.