Deadline Set - Foreign Person Surcharges on Discretionary & Testamentary Trusts

08 SEP 2020


Executive Summary

The State Revenue Legislation Further Amendment Act 2020 (NSW) (the Act) received Royal Assent on 24 June 2020.

It clarifies that a trustee of a discretionary trust (including discretionary testamentary trusts) owning property in NSW is taken to be a foreign person for foreign surcharge purposes, if the trust does not irrevocably prevent a foreign person from being the beneficiary of the trust.

The transitional provisions give trustees of discretionary trusts an exemption and refund for foreign surcharges where the trust deed, made on or before 24 June 2020, contains an irrevocable provision to prevent a foreign person from benefitting.

Until 31 December 2020, trustees of discretionary trusts have an opportunity to amend their trust deeds to include such a provision. From 1 January 2021, trustees will be subject to the charges unless the provision is included. It is therefore prudent to review your trust deed to ensure it has the appropriate provision and, if not, it should be amended to include such a provision.


From 21 June 2016, foreign persons became liable to pay:

(1)           a surcharge purchaser duty (currently 8% of the market value of the property) on the acquisition of residential property in NSW; and

(2)           a surcharge land tax (currently 2% of the unimproved value of the land) for any residential property in NSW owned as at 31 December each year.

The definition of a foreign person includes a discretionary trust where any beneficiary of the trust is a foreign person. In summary:

(1)           a foreign person is a person who is not an Australian Citizen and does not reside in Australia for at least 200 days a year; and

(2)           a foreign entity is an entity in which a foreign person shareholder holds at least a twenty percent (20%) interest in the entity.  

Foreign Person Beneficiary

Discretionary trust deeds often give the trustee wide powers to distribute income and/or capital to family or other relatives of a beneficiary and in many cases to charities. If any one of the potential beneficiaries is a foreign person, the trustee may be liable for the payment of surcharge duty and surcharge land tax for any residential property owned by it.

In addition, the new legislation has clarified that a trustee of a discretionary trust owning residential property in NSW is taken to be a foreign person for the purpose of the foreign person surcharges, if the trust deed does not contain an irrevocable provision preventing a foreign person from benefitting under the trust.

As a result, if a trustee of a trust purchases and/or owns residential property in NSW and the trust deed does not contain such a provision, then the trustee will be liable to pay the stamp duty and/or land tax surcharge.

How to Avoid the Foreign Person Surcharges

The transitional provisions give trustees until 31 December 2020 to amend their trust deeds (if it has not been done already) to include an irrevocable provision which prevents a foreign person from benefiting under the trust. Trusts created on or before 24 June 2020 and containing such a provision will be granted an exemption and/or refund for foreign surcharges.

From 1 January 2020, trust deeds without the clause will be subject to the foreign person surcharges.

It is therefore important to review your trust deeds and ensure they are updated before 31 December 2020.

If you would like advice or assistance in relation to the above or any other Commercial matters, please contact our accredited business law specialists and Partners Justin Thornton on and Rahul Lachman on or otherwise by calling them on (02) 4626 5077.

The contents of this publication are for reference purposes only. This publication does not constitute legal advice and should not be relied upon as legal advice. Specific legal advice should always be sought separately before taking any action based on this publication.




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