Foreign Person Surcharge Purchaser Duty and Land Tax: Extension to Amend Discretionary Trust Deed

4 July 2020

The NSW Chief Commissioner (‘Chief Commissioner’) has updated the following practice note CPN 004 Foreign Surcharges and Discretionary Trusts (‘CPN 004’).

By way of background, surcharge purchaser duty applies where NSW residential land is acquired by foreign persons. Surcharge land tax applies where a foreign person owns NSW residential land. These surcharges are paid in addition to ordinary duty or land tax that applies for these transactions.

A discretionary trust that acquires or holds NSW residential land (directly or indirectly) will be liable for these foreign surcharges if any of its potential beneficiaries is a foreign person. This extends to beneficiaries nominated by class and not specifically named in the trust deed.

CPN 004 provides where discretionary trusts have amended their trust deed before midnight on 31 December 2020, to exclude foreign persons from being beneficiaries of the trust (and that amendment is not capable of being amended in any manner):

  • Surcharge Purchaser Duty: The trustee of the trust will not be liable for surcharge purchaser duty on the transfer of dutiable property that occurred before midnight on 31 December 2020.
  • Surcharge Purchaser Duty Paid: The trustee is entitled to a refund if surcharge purchaser duty has been paid where there was a transfer of dutiable property prior to midnight on 31 December 2020.
  • Surcharge land tax: The trustee will not be liable for surcharge land tax for the 2017, 2018, 2019 and / or 2020 land tax year.
  • Surcharge Land Tax Paid: The trustee is entitled to a refund if they have paid land tax surcharge for any of the aforementioned years.

The Chief Commissioner has clarified in CPN 004 that superannuation trusts and special disability trusts are not required to amend their trust deeds to exclude foreign persons as potential beneficiaries. These trusts’ deeds cannot be amended and as such comply with the ‘no amendment requirement’. Any other trusts that cannot be amended should lodge a private binding ruling request with the Chief Commissioner requesting a determination that the ‘no amendment requirement’ applies.

The Chief Commissioner has also clarified the trustee of an Australian testamentary trust* is not a foreign trustee even if foreign persons are not excluded from being beneficiaries of the trust if:

  • The will / codicil was executed on or before 31 December 2020; or
  • The deceased died intestate before, or within two years after 24 June 2020; or
  • An order of a court varying the application of the provisions of a will / codicil or the rules governing the distribution of an intestate estate was made on or before 31 December 2020.

Our team at Cutcher & Neale are here to help you. If you have a discretionary trust that has a direct or indirect interest in NSW residential land, please phone us on (02) 4928 8500 to discuss whether you need a deed of variation to exclude foreign persons as beneficiaries of your trust.

*An Australian testamentary trust includes a discretionary trust arising from a will / codicil or administration of an intestate estate where the deceased was not a foreign person immediately before their death.

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