Land Tax and Stamp Duty Alert
Does your Discretionary Trust currently own any residential real estate?
Or is your current Trust intending to purchase residential real estate?
If so, the information below is important and urgent action is required before the end of the year.
The New South Wales Government has recently introduced a Bill into Parliament which has the effect of classifying all Trusts as foreign trusts as at 1 January 2020, regardless of whether they have a foreign connection or not.
So what are the consequences of this bill and what can be done to avoid them?
If the Bill is passed, then a discretionary trust is deemed to be a “foreign person” and 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; 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 the 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 which would result in there being a potential beneficiary who is a foreign person.
When should you take action?
The Trust Deed will need to be amended on or before 31 December 2019 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 on 9212 1099. As we are closing for the Christmas and New Year period between 24 December 2019 and 6 January 2020 contact us as soon as possible.
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.