Recent changes in NSW mean that trustees of discretionary trusts may be liable for additional duties where those trusts hold or acquire land, in two ways:
- From 21 June 2016 a discretionary trust trustee that acquires land may be liable to an extra 4% duty on the acquisition.
- From 1 January 2017 a discretionary trust trustee that holds NSW land may be liable to pay an extra 0.75% ‘surcharge land tax’.
In both cases what will determine whether the trustee is subject to these imposts is whether a ‘foreign person’ can benefit under the trust. Note that this means that the person is capable of benefitting, not that they have received a benefit from the trust.
Most discretionary trust deeds are drafted to include a large range of persons as potential beneficiaries. It is common for a deed to name one or more beneficiaries, and then to have other beneficiaries defined by their relationship to that person. For example, a deed might nominate John Smith as a beneficiary, and then define the potential beneficiaries of the trust to include any descendant of John Smith’s grandparents. Where any of the potential beneficiaries of the trust is a non-resident (and not an Australian citizen, with there being some other exceptions) the trustee will be taken to be a ‘foreign person’. This has the following consequences:
- If the trustee is taken to be a foreign person then in relation to the acquisition of ‘residential land’ they will need to pay an extra 4% duty on the dutiable value of the property.
- If the trustee is taken to be a foreign person then in relation to any land holdings on 31 December 2016 they will need to pay a surcharge land tax of 0.75% in additional to their ordinary land tax obligations.
For discretionary trust trustees intending to acquire residential land, great care should be taken in drafting the deed.
For discretionary trust trustees holding taxable land in NSW, a deed amendment may be necessary before 31 December 2016 to prevent the surcharge land tax being payable.
There are similar provisions in place in other Australian jurisdictions.
Legislation giving effect to these measures is in the State Revenue Legislation Amendment (Budget Measures) Act 2016 (NSW) which received Royal Assent on 28 June 2016.