Important changes relating to discretionary trusts

If you are a trustee of a discretionary trust and you hold (or intend to hold) residential land in New South Wales in your capacity as trustee of that trust then you need to read this.
On 21 June 2016, the NSW Government introduced surcharge purchaser duty and surcharge land tax which is imposed on certain foreign persons including relevant foreign trustees acquiring and holding residential land in New South Wales.
On 22 October 2019, the State Revenue Further Amendment Bill 2019 was introduced into the NSW Parliament proposing changes to the Duties Act 1997 (NSW), the Land Tax Act 1956 (NSW) and the Land Tax Management Act 1956 (NSW) affecting discretionary trusts.
The proposed amendments will:
1. deem all discretionary trusts to be foreign trusts unless they expressly include provisions that irrevocably prohibit foreign persons from being or becoming potential beneficiaries under the trust; and
2. for trust deeds that do not currently contain this express prohibition, provide a cut off date of 31 December 2019 to vary the trust deed to include such prohibition.
The effect of these changes is that all discretionary family trust deeds holding residential land or intending to purchase residential land in NSW will need to be amended to include provisions covering the matters set out above if the trustee is to stay outside the duties regime applying to foreign persons.
Simply put, a trustee of a discretionary trust that does not contain these prohibiting provisions will be deemed to be a “foreign trustee” and will pay an additional 2% in land tax in New South Wales from the 2018 land tax year onwards and could end up paying transfer duty of up to 15% in New South Wales on the dutiable value of any residential land purchased in the future in New South Wales.
If you think you might be affected by these legislative changes we strongly recommend you contact our Senior Associates Sophie Newham or Dominic Tonkin regarding this matter.