Important update on discretionary trusts
The NSW government recently introduced a bill whereby virtually all discretionary trusts may be deemed to be foreign trusts, regardless of whether they have any foreign connection or not.
This has two significant consequences:
- If the trust purchases any residential property in NSW, it will pay a surcharge of 8% on top of the normal stamp duty paid on a purchase; AND
- While NSW residential property is held by the trust, the trust will pay a land tax surcharge of 2% per year, in addition to the normal land tax payable.
However, these will not apply if the trust deed is amended prior to 31 December 2019 to provide that there can be no distribution to a foreign person, and to provide that such prohibition cannot be revoked.
The bill means that, forever into the future, any purchase or holding of residential property will be subject to the surcharges, unless the amendment is made to the trust deed.
WLM is currently checking all our discretionary trust clients for those who own NSW land and contacting them with what needs to take place to avoid these additional taxes.
If your family trust owns land in NSW or you are intending to purchase property in your trust we recommend you 1) review your trust deed to check whether foreign persons are specifically excluded and 2) coordinate an amendment of your trust deed to exclude foreign beneficiaries, which will remove the trusts liability for the surcharge. Please note, it is unlikely that your trust deed excludes foreign persons.