In NSW, surcharge purchaser duty applies to acquisitions of NSW residential land by foreign persons, and surcharge land tax applies to foreign persons who are owners of residential land in NSW. Surcharge purchaser duty and surcharge land tax (together known as the “foreign surcharges”) are payable in addition to any other duty or land tax payable.

Where an interest in a property is acquired by or held on trust by a discretionary trust, the trustee of the trust may be liable for foreign surcharges if any one of the “potential beneficiaries” is a foreign person.

Legislation passed in February 2020 in NSW, the State Revenue Legislation Further Amendment Bill 2019 (NSW), basically deems any trustee a foreign trustee (see schedule 2 on page 3 of this explanatory note) unless the trust deed specifically prevents a foreign person from even being a potential beneficiary. 

The surcharge purchaser duty and surcharge land tax are aimed at foreign persons and applies to discretionary trusts, however if the terms of the trust deed specifically prevent a foreign person from being a beneficiary, the trustee will not be considered to be a foreign person.

Provisions in the bill provide that trustees of trusts that hold (or may acquire) real property in NSW have until midnight on 31 December 2020 to irrevocably amend the deed. Such amendments can specifically:

• Prevent potential beneficiaries that are foreign persons from receiving distributions as to income or capital under the trust.
• Remove from the deed any existing named beneficiary who is a foreign person. It is not sufficient for any named or specified beneficiary who is a foreign person to simply be prevented from receiving a distribution in any particular year.
• Even if the surcharge duty has already been paid, the bill provides that trustees who amend the provisions of the deed before midnight on 31 December 2020 are entitled to a refund of any surcharge duty that has been paid.
• Amendments made to discretionary trust deeds after midnight on 31 December 2020 will have no effect in terms of avoiding the imposition of surcharge duties and taxes retrospectively applied from the 2017 land tax year onwards.

The Victorian State Revenue Office has applied a similar approach since 1 March 2020.