Act now to avoid NSW foreign surcharges on discretionary trusts

Nearly all discretionary trusts are taken to be foreign persons in NSW. 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. You can read more in our previous alert here.

The NSW Government has imposed a hard deadline of 31 December 2020 for taxpayers to take the necessary steps to avoid a surcharge.

If the discretionary trust has acquired or held NSW residential land on or after 21 June 2016, it can be subject to a foreign surcharge, which is up to an additional 8% duty (compared to the top base rate of 7%) and/or an additional 2% annual land tax (compared to the top base rate of 2%). Foreign surcharges can more than double the duty or land tax otherwise payable and are retrospective to 21 June 2016.

What do I have to do before 2021?

If your discretionary trust has acquired or held (directly or indirectly) NSW residential land on or after 21 June 2016, you should check whether the trust deed expressly excludes any foreign person (within the meaning of the NSW Land Tax Act and NSW Duties Act) from being a beneficiary. If it doesn’t, you may need to amend the trust deed to include such a clause before 2021.

What if I don’t amend the trust deed in time?

If the trust deed is not amended before 2021, the following could happen, regardless of whether the property is still held:

1. Surcharge purchaser duty of up 8% could be payable on NSW residential property acquired on or after 21 June 2016; and/or
2. Surcharge land tax of up to 2% on NSW residential property held at midnight on any 31 December starting from 31 December 2016.

How can we help?

We are well placed to urgently advise on the potential liability, the appropriate actions which must be taken, and help facilitate a trust variation with the assistance of legal counsel. If you need help, please contact your local Grant Thornton partner or our specialist State Taxes partner, Steven Paterson.