Mullane & Lindsay SolicitorsYou need to amend your trust deed - Mullane & Lindsay Solicitors

You need to amend your trust deed

Posted on December 15th, 2017

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Recent amendments to transfer duty and land tax legislation may affect every Family/Discretionary Trust that either purchases or holds land in New South Wales.

A Family/Discretionary Trust is often used as an asset protection structure as the trustee normally has wide discretionary powers to distribute income and capital to wide classes of beneficiaries under the trust.

However, this wide discretionary power may cause a Family/Discretionary Trust to fall foul of the legislative amendments in 2016 targeted at “foreign persons” acquiring and holding land in NSW. Foreign persons are now subject to a 4% surcharge purchaser duty when acquiring residential land and a 0.75% surcharge on land tax where a foreign person holds residential land in NSW.  

Foreign person” means a person who is a foreign person within the meaning of the Foreign Acquisitions and Takeovers Act 1975 (“FATA”) and the extent of a beneficiary’s interest in a Family/Discretionary Trust is assesses under Section 18(3) of the FATA as follows:

“For the purposes of this Act, if, under the terms of a trust, a trustee has a power or discretion to distribute the income or property of the trust to one or more beneficiaries, each beneficiary is taken to hold a beneficial interest in the maximum percentage of income or property of the trust that the trustee may distribute to that beneficiary.”

 Therefore, if the beneficiary class under a Family/Discretionary Trust is drafted to include a wide range of members, it is likely it could possibly include a foreign person and trigger the above.

Should trustees of Family/Discretionary Trusts wish to prevent the foreign surcharge duties applying then the trust deed will need to be amended to exclude a “foreign persons” from being a beneficiary and benefiting from the trust.

The Office of State Revenue has recently issued Revenue Ruling No G 010 Version 2 which contains an exemption available to trusts to avoid the foreign person surcharge for purchases of land and the surcharge land tax. The exemption provides that:

 “The trust deed must be amended so that the trustee is no longer liable for the taxes. Where it is not possible to amend the deed prior to when a dutiable transaction occurs or a land tax liability arises, the trustee may apply to the Chief Commissioner for an exemption to be granted on the proviso that the amendment has been made or will be made within 6 months after granting the exemption. If the trust deed is not amended within the required timeframe, the exemption will be rescinded with retrospective effect.”

If you have a Family/Discretionary Trust, we recommend you contact us to arrange for a Deed of Amendment of Trust Deed be prepared to specifically exclude foreign persons from being a beneficiary of the Family/Discretionary Trust.

 

Lachlan Page, Solicitor at Mullane & Lindsay Solicitors, NewcastleLachlan Page is a Solicitor at Mullane & Lindsay Solicitors and practices extensively in commercial, business and property transactions and adviceIf you require any assistance in this area please contact Lachlan Page to arrange a consultation or contact our Newcastle office.

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