Dear Sir/Madam we need to inform you that we need to amend your trust deeds by 31 December 2019 to prevent extra duty or land tax being payable where the trustee owns residential land in New South Wales.
The NSW Government has proposed amendments to foreign person duty and land tax surcharges for discretionary trusts that may require trustees to amend their trust deeds before 31 December 2019.
The trustee of a discretionary trust that owns residential land in New South Wales is liable for surcharge purchaser duty and/or surcharge land tax where they are a ‘foreign trustee’. A foreign trustee is a foreign person for the purpose of the duty and land tax surcharges. Foreign persons pay:
- a duty surcharge of 8% on the dutiable value of land when they buy land; and
- land tax surcharge of 2% of the land tax value of all residential land owned as at 31 December each year.
If an amendment has not previously been made to a trust deed to exclude foreign persons, an amendment must now be made to the trust deed before 31 December 2019 to ensure that there is no surcharge duty imposed on the trustee for any dutiable transactions that occurred prior to 31 December 2019, or any surcharge land tax liability for the 2017, 2018 and 2019 land tax years.
Where a trust deed does not exclude foreign persons as beneficiaries prior to 31 December 2019, the amendments proposed by the Bill require that in order to ensure that the trustee is not a foreign person for duty and land tax from December 2019, there must be no ability under the trust deed to use the amendment power to include foreign persons as beneficiaries. That is, the exclusion of foreign persons must be irrevocable.
Revenue NSW has been sending out letters to land-owning trustees to advise them of the need to amend their trust deeds before 31 December 2019.
The proposed legislative amendments suggest that the Chief Commissioner’s discretion outlined in Revenue Ruling G010 (G010) no longer applies. Under G010, where a trust deed was not amended prior to a dutiable transaction occurring or a land tax liability arising, the trustee could apply to the Chief Commissioner for an exemption to be granted on the proviso that an amendment was made within 6 months of the grant of the exemption.
If G010 no longer applies, a significant impact of the proposed changes is that it will be extremely important, when establishing a trust that is to acquire residential land, to ensure that the trust deed properly excludes foreign persons from benefiting from the trust.
The preparation of a Deed of Amendment (including a review of relevant Trust terms) would cost between $750 and $950 plus GST, potentially saving many thousands of dollars well into the future.