If you have a trust structure that owns real property in Victoria or New South Wales – it is crucial that you are aware of some upcoming changes.

Trusts that have a foreign person as a potential beneficiary will automatically be classified a foreign trust and subject to foreign purchaser duty. From 1 March 2020, all trust deeds must be amended to exclude foreign beneficiaries, regardless if a foreign person is actually benefitting or not.

Below is a brief summary of the upcoming changes. We urge you to seek legal advice immediately if you believe the following information relates to you.

as it stands

For years, foreign persons have been beneficiaries of trusts in Australia and not categorised a foreign trust, provided the total beneficial interest was under 50%. This was called the ‘practical approach’: funds had to actually end up in the hands of the foreign person to incur foreign purchaser duty and land tax surcharges. 

what is being implemented from 1 March 2020?

Both the New South Wales and Victorian Offices of State Revenue [OSRs] announced they will stop applying the ‘practical approach’. The OSRs will assume that if any discretionary trust has any potential foreign beneficiaries, the trust will be a foreign trust.

This change means anyone purchasing property through a trust that includes a foreign person as a beneficiary will now be liable for foreign purchaser additional duty.

what can be done?

Individuals must ensure the trust acquiring property is not classified as a foreign purchaser. This means that trusts that do not include a foreign beneficiary must be the vehicle to purchase property. However, this request is unfavourable and difficult to implement for many. 

It also causes confusion on determining – what is a foreign person? What happens if a beneficiary departs Australia temporarily for work – is the trust now a foreign trust? How can beneficiaries protect themselves from this uncertain position?

Alternatively, trust deeds must be amended to entrench restrictions on foreign persons as beneficiaries.

conclusion

If you own or plan to own real property in Victoria or NSW through a trust structure, it is vital you ensure that your trust deed includes the relevant exclusions.

We are happy to review any trust deeds or provide assistance to ensure you are not unnecessarily liable for foreign purchaser additional duty.

General Advice Disclaimer

Information provided on this website is general in nature and does not constitute financial or legal advice. Every effort has been made to ensure that the information provided is accurate, but information may become outdated as legislation and new government announcements are made. Individuals must not rely on this information to make a financial, investment or legal decision as it does not take into account their personal circumstance. Before making any decision, we recommend you consult a licensed adviser or legal practitioner to take into account your particular objectives, circumstances and individual needs.