Land Tax Exemption – Critical Deadline for Discretionary Trusts

The NSW Government has recently passed legislation to provide a Stamp Duty and Land Tax exemption to Trustees of discretionary trusts that hold or intend to hold residential property in New South Wales, so that they are not treated as Foreign Trusts.

Discretionary trusts acquiring or holding an interest in residential property in NSW could be considered to be Foreign Trusts and, as such, be liable to pay surcharge purchaser duty (an additional 8%) and surcharge land tax (an additional 2%) on the acquisition and holding of an interest in residential property by the trust for which it is a trustee in NSW.

This does not apply to trust deeds which satisfy both of the following requirements by 31 December 2020:

1. that no potential beneficiary of the trust is a foreign person; and
2. that the terms of the trust are not capable of amendment in a manner that would result in there being a potential beneficiary of the trust who is a foreign person.

Your Trust may not hold the property directly, however it may be linked to another trust that holds property in NSW. In this case your Trust Deed will also be required to satisfy the above requirements to ensure that the Trust holding the property receives the Foreign Trust exemption. 

A Trust that prevents a foreign person from being a beneficiary of the trust in this manner cannot make distributions to foreign persons, and this cannot be changed.

Some Trustees have recently received a letter from Service NSW – Revenue NSW relating to the above, and requesting clarification of the status of your Trust if it is holding property in NSW. These letters need an immediate response and should be directed to our office for further advice if received.

Should you need assistance with the above we are working closely with our to legal team to provide a Trust Deed review for your Trust/s to ensure that your Trust Deed/s are compliant and making the necessary amendments to the Deed/s before the 31 December 2020.

If your Trust holds property, or is linked to a Trust that holds property, in NSW and you would like us to review your Trust/s exemption position, please contact Euganie or Brian at our office urgently on 02 9325 5777 no later than Friday, 4 December 2020.

Due to the 31 December 2020 imposed deadline your prompt attention is prudent.