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State revenue and discretionary trusts

Gerald Santucci

15 Jan 2020

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  • Business Law
birds on a wire

The State Revenue Legislation Further Amendment Bill 2019 was introduced into the NSW Parliament in October 2019 and was to have effect from
1 January 2020. However, as Gerald Santucci explains, it remains a Bill at this stage.

Purpose of the Bill

The purpose of this Bill is to raise revenue.

The manner of raising the revenue is that any discretionary trust that owns residential land in NSW will be charged a land tax surcharge unless the trust prevents a foreign person from being a beneficiary of the trust. This prevents a discretionary trust from inadvertently attracting liability for surcharge duty and tax payable by a foreign trustee.

Effect

Importantly, under this Bill, all trustees in NSW who own residential land will be treated as a foreign person for land tax and surcharge purposes.

While the Bill is couched in these gentle terms, the effect is that a discretionary trust from now on must prevent a foreign person from being a beneficiary if it wishes to avoid being charged a surcharge.

In addition, an assignment to a third person of an option to purchase dutiable property will be treated as a transfer of that property for stamp duty purposes so that an arrangement for the relinquishment of an option will be included as an agreement to sell to that third person. Although there are also other consequential changes, the ones listed here are the most significant.

How can we help?

If you have a discretionary trust you should seek to have the trust deed varied to exclude foreign persons. While this currently applies to NSW residential land, there is every possibility that it will be enacted in other states and territories as a revenue-raising effort in a default capacity.

You should look at amending your deed unless you are certain and are prepared to take the risk that the trust you control will never own residential land and therefore will not be up for a surcharge on land tax. We have a Deed of Variation ready to go at a fixed fee of $880.

Contact our Business Law team on 02 6285 8000 or by email.

*The content of this article is provided for information purposes only, and we do not accept any liability for reliance upon the information contained in this article.  This information cannot be relied upon as legal advice.