ALERT – TRUSTS HOLDING RESIDENTIAL PROPERTY IN NSW MAY NEED TO CHANGE TRUST DEEDS BEFORE 31 DECEMBER OR PAY FOREIGN SURCHARGES ON STAMP DUTY AND LAND TAX
For Stamp Duty and Land Tax purposes, any residential land owned by a foreign resident in NSW will be subject to higher rates. An additional 8% for Stamp Duty and an additional 2% for Land Tax.
Trust treated as a “foreign person” – Changes Introduced into NSW Parliament
Under recent changes introduced in a Bill to the NSW Parliament, a Trust which can potentially have a foreign beneficiary will be treated as a foreign person and will be subject to the higher rates of Stamp Duty and Land Tax if this Bill is passed.
Most Discretionary Trust Deeds are written very broadly in terms of who can be a beneficiary and will be considered foreign land holders under these new provisions. Furthermore, the legislation will be retrospective and apply from 21 June 2016 onwards. This means that residential properties purchased between 21 June 2016 and today will be caught by the legislation and subject to an additional 8% stamp duty (on the full price of the building and land) as well as be subject to an additional 2% of land tax over this period.
This legislation may also have an impact on companies and Unit Trusts which have Discretionary Trusts as shareholders or Unit Holders.
Although the Bill was only introduced to Parliament on 22 October 2019 and may not be passed as law before the proposed start date, the short time frame available to make changes to Trust Deeds means that leaving this to chance could be an expensive proposition.
Avoid having to pay an Stamp Duty and Land Tax – Review and Amend your Trust Deed
The only way to avoid this outcome is to ensure that Trust Deeds are amended prior to 31 December 2019 to ensure that foreign persons are prevented from being beneficiaries of a Discretionary Trust. With the closure over the Christmas period, if your deed needs to be updated we need to have these submitted to our law office no later than COB Tuesday 17th December.
A note of caution – while most modern Trust Deeds will not be affected, where a Trust Deed is changed outside the scope of the powers permitted by the Trust Deed then what is known as a resettlement can occur which can trigger Capital Gains Tax. Therefore, it is important that a legal advisor review the terms of the Trust Deed prior to amending.
If you own property in NSW and you are this is of concern to you, please do not hesitate to our resident Tax Specialists Ian McGinniss or feel free to speak with anyone from our our Property and Construction Division
