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Discretionary trusts – Take action now to avoid extra land tax and stamp duty charges!

Date: 22 November 2019

In NSW the extra 8% stamp duty and extra 2% land tax surcharges for foreign persons, trusts and companies have been in place for a few years. These surcharges apply on top of the usual stamp duty and land tax liabilities.

Until now the trustee of a discretionary trust that owns residential land in NSW has not needed to worry about these extra charges unless they were going to distribute to a foreign beneficiary. However this is about to change.

The change proposed is that the trustee of a discretionary trust will be treated as a foreign trustee unless foreign persons are excluded from being beneficiaries. It follows that unless the trust deed is amended to exclude foreign persons as beneficiaries before 31 December 2019, the discretionary trust will be liable to surcharges on purchasing or holding residential land in NSW.

It is critical that discretionary trusts with direct or indirect interests in NSW residential land take action before 31 December to avoid these extra charges.

We note that the definition of ‘residential land’ for surcharge purposes includes any land or strata lot with a building that has rooms that can be occupied (which would include commercial residential properties), except land which is used for genuine primary production activities. It also includes vacant land that is zoned for residential purposes.

Our Tax & Estate Planning Team are currently reviewing our client base and will assist discretionary trust clients impacted by these changes to amend their trust deeds before the deadline.

UPDATE: On 18 June 2020 the Bill setting out these changes was passed by the NSW Parliament and received assent on 24 June 2020. The Bill had been amended to change the deadline to 31 December 2020. This provides a final window of opportunity for trustees to avoid surcharge duty and land tax.

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