fbpx

Changes to Stamp Duty & Land Tax for Trusts

Changes to the law in June 2016 meant that foreign persons acquiring residential property in NSW were liable to pay a surcharge on the usual stamp duty payable on the purchase. If a foreign person owned a residential property from 31 December 2016, they were also liable for a land tax surcharge and are not entitled to the tax-free land tax threshold.

Recent changes to the law now mean that the trustee of a discretionary or family trust is deemed to be a ‘foreign person’ if the terms of the trust don’t prevent a foreign person from being a beneficiary. Most trusts deed would not include such a provision and therefore will be subject to a land tax surcharge of 2% on the unimproved value of the residential property and a surcharge stamp duty of an additional 8% of the value of any residential land the trust purchases/

Land Tax surcharge

Revenue NSW has determined that so long as a trust deed is amended before 31 December 2020, it will not be liable for the surcharge land tax. If the trust is amended by this date, the trust will not be liable for the land tax surcharge for the 2017, 2018, 2019 or 2020 year. If the surcharge has been paid in any of these years, the trust will be entitled to a refund.

If your trust owns residential property or may own residential property in the future, it is essential that you get the trust deed reviewed to ensure that you will not be liable for either surcharge. The trust deed must be amended to ensure that a foreign beneficiary cannot receive any benefit or distribution from the trust. It is not enough that none of the current beneficiaries are foreign persons. For example, if the trust deed includes that any spouse of your child is a potential beneficiary, there is a chance that at some point such spouse may be a foreign person.  The trust deed must be explicitly amended to provide that such spouse would not be a beneficiary if they are a foreign person.

If amendments to the trust deed were not made before 24 June 2020, the trust deed is required to be amended so that:

  1. no potential beneficiary of the trusts is a foreign person (as discussed above); and
  2. the terms of the trust must not be capable of amendment in a manner that would result in a foreign person being a potential beneficiary in the future.

Purchaser surcharge duty

If the trust does not include the provisions excluding foreign persons and it purchases residential property in NSW, it will be liable for surcharge purchase duty. This duty is in addition to the usual stamp duty paid on the purchase. If you intend to purchase a property through a trust, it is important that your trust deed is amended prior to entering into any contract to purchase the property.

Testamentary trusts

There may be circumstances where a person has set up a trust in their will. If the person owns residential property, the testamentary trust may become liable for surcharge land tax if a foreign person is a beneficiary of the trust. For wills executed on or before 31 December 2020, Revenue NSW’s current policy is to ignore if a foreign person is a potential beneficiary of the testamentary trust. For any wills executed after this date, if the terms of the testamentary trust do not prohibit a foreign person from benefiting, the trust will be liable for the surcharge land tax taking advantage of the elimination of stamp duty of share transfers.

Review you trust deed

The potential additional costs for owning residential property in a discretionary trust are substantial. It is essential that you get your trust deed reviewed or ensure that any new trust deed includes the required provisions to exclude foreign beneficiaries. If it is necessary to include a foreign person or entity in a trust or company structure, there may be ways to reduce or eliminate the potential purchase surcharge and land tax surcharge. Our team can assist in restructuring your trust or corporate structure

If you control a trust or are the beneficiary of a trust, get in contact with our team today to have your trust deed reviewed and ensure you don’t get hit with substantial surcharge duty or land tax surcharge.

Daniel is a solicitor in our team with experience in litigation, conveyancing & property and wills & estates.

Related Posts

DISCLAIMER

No part of these notes can be regarded as legal advice. Although all care has been taken in preparing all notes, readers must not alter their position or refrain from doing so in reliance on any of these notes. Stephen Wawn & Associates do not accept or undertake any duty of care to readers relating to any of these notes. All inquiries should be directed to Stephen Wawn & Associates.

We are using cookies to give you the best experience. You can find out more about which cookies we are using or switch them off in privacy settings.
AcceptPrivacy Settings

GDPR

  • Privacy Policy
  • Google Analytic
  • Facebook Pixel
  • LinkedIn Insight
  • Microsoft Clarity

Privacy Policy

We collect and use your data to provide and improve our services to you and your experience. By using our website, you agree to the collection and use of your information in accordance with our Privacy Policy.

Our full privacy policy can be found here: https://stephenwawn.com.au/privacy-policy/

Google Analytic

Our website uses Google Analytics to collect anonymous information such as the number of visitors to the site and the most popular pages.

Information on the Google Analystics Privacy Policy can be found here: https://policies.google.com/privacy

Keeping this cookie enabled helps us to improve our website and your experience.

Facebook Pixel

Our website uses Facebook Pixel to collect anonymous information which may be linked to your Facebook account.

Information on the Facebook Privacy Policy can be found here: https://www.facebook.com/policies/cookies/

Keeping this cookie enabled helps us to improve our website and your experience.

LinkedIn Insight

Our website uses LinkedIn Insight to collect anonymous information including your engagement with posts and pages related to our business on LinkedIn which may be linked to your LinkedIn account.

Information on the LinkedIn Privacy Policy can be found here: https://www.linkedin.com/legal/privacy-policy

Keeping this cookie enabled helps us to improve our website, the content on our website and your experience.

Microsoft Clarity

Our website uses Microsoft Clarity to collect anonymous information on your use and interactions with our website to help improve your use of our website.

Information on the Microsoft Privacy Policy can be found here: https://privacy.microsoft.com/en-GB/privacystatement

Keeping this cookie enabled helps us to improve our website, the content on our website and your experience.