Exclusion of foreign persons in a discretionary trust

The OSR have recently sent out a letter to discretionary trusts with residential properties in NSW asking if foreign persons have been excluded, which has seen an increase in clients looking to amend discretionary trust deeds in order to avoid paying surcharge land tax on properties owned by the discretionary trusts.

Trusts that hold or intend to hold residential property in New South Wales, Victoria and Queensland may be liable to surcharge land tax and/or surcharge purchaser duty if any of their beneficiaries qualifies as a 'foreign person', regardless of the specified law of the State set out in the trust deed which governs the trust. The surcharge is in addition to any land tax the trust may already be paying.

For these purposes, a 'foreign person' includes:

• an individual who is not ordinarily resident in Australia (in this regard, an Australian citizen is considered to be ordinarily resident in Australia even if they live overseas); and
• companies and trusts in which a foreign individual holds a substantial interest, or in which two or more persons, each of whom is an individual who is not ordinarily resident in Australia, hold an aggregate substantial interest.

This applies to discretionary trusts if any beneficiaries, or even any potential beneficiaries, meets the definition of a foreign person (and even if none of the beneficiaries who actually receive distributions from the trust are foreign persons).

There can also be consequences relating to capital gains tax if extreme care is not taken in that a variation of the trust deed can be seen as a resettlement of the trust. We are able to assist with the careful variation of the discretionary trust to best suit you.

Our associated law firm, Townsends Business and Corporate Lawyers, can prepare the necessary documents to effect this amendment.

Prices:

$330 incl GST - SUPERCentral/Townsends Deed

$440 incl GST - Non SUPERCentral/Townsends Deed - the current trust deed will be reviewed to ensure that the variation is prepared in compliance with the current rules of the trust.

Our documents package includes all the necessary documents to give you the peace of mind of knowing that the variation was validly effected. For further assistance please contact us on 02 8296 6266.