Foreign surcharges – time to amend discretionary trusts

By way of an ate to our alert in October on the NSW land tax amnesty, taxpayers initially had until 31 December 2019 to change their trust deeds such that they are not inadvertently deemed to be “foreign persons”.

The changes make it clear that all discretionary trusts are “foreign persons” for duties and land tax surcharge purposes unless the trust deed prevents a foreign person from being a beneficiary of the trust. While this was already the practice of the NSW government, the government has been quite lenient in allowing taxpayers to change their trust deeds until now.

This directly affects trusts which have acquired residential land since 21 June 2016 or have held residential land for a land tax year from 2017 or later.

Surcharges can more than double the tax otherwise payable and is a material cost to buying or holding residential land in NSW.  

As the Bill has yet to be passed by the Parliament, the Government intends to extend this deadline to a later date, in 2020, presumably after the Bill passes. However, we encourage Trustees to amend their deeds as a matter of priority as changes made before the Bill passes can have more flexibility for the administration of the Trust going forward.