NSW Revenue Law Update25 November 2019
The NSW State Revenue Legislation Further Amendment Bill 2019 (which was introduced on Tuesday 22 October 2019) (Bill) will deem the trustees of all discretionary trusts (and other trusts) holding interests in residential land to be foreign trustees unless there are terms in the instruments creating the trusts that expressly prohibit foreign persons from being a beneficiaries and that these terms cannot be varied (Required Terms).
Foreign purchaser/Surcharge land tax changes
- The new proposed s 104JA of the Duties Act 1997 largely sets out the current rulings requirements for a discretionary trust not to be treated as a foreign trustee for foreign purchaser surcharge duty (see paragraph 3) and goes beyond those requirements requiring the trust deeds (or the instruments creating the trusts) to include the Required Terms. There is a proposed mirror amendment for surcharge land tax – s 5D of the Land Tax Management Act 1956.
- Section 104JA and s 5D provide that any relevant instrument creating a discretionary trust, which does not contain the Required Terms, the trustee of the trust will be deemed to be a foreign trustee and so liable to foreign purchaser duty and surcharge land tax where the trust has an interest in residential land. This is regardless of whether the trust has foreign beneficiaries.
- Prior to these proposed new provisions, there needs to be at least one foreign beneficiary to deem the trustee to be a foreign trustee.
- The new proposed s 104JA will apply retrospectively to create liability to foreign purchaser duty on any residential land acquired since the introduction of foreign purchaser duty on 21 June 2016.
- The new proposed s 5D will also apply retrospectively to create a liability on residential land from the commencement of surcharge land tax in the 2017 land tax year.
- To avoid the retrospective liability for stamp duty and land tax referred to in paragraphs 4 and 5, the trust deed (or instrument creating the trust) must contain the Required Terms by 31 December 2019.The new proposed provisions will not apply to existing testamentary trusts (in wills for example) or those commencing within 2 years of the proposed legislation being enacted.
Urgent action required
Trust deeds (or other instruments) creating discretionary trusts that have interests in residential land that do not already contain the Required Terms must be varied and amended to contain the Required Terms by 31 December 2019 to avoid the retrospectivity referred to in paragraphs 4 and 5.