Time is running out to update your family trusts to exclude foreign persons as beneficiaries
Earlier this year it was announced the potential tax and stamp duty consequences of holding residential property in family trusts in New South Wales, Victoria and Queensland, due to the introduction of a foreign person surcharge.
Why do family trusts attract the surcharges?
Recent changes to duty legislation at the end of 2016 in New South Wales, Victoria and Queensland has meant that “foreign persons” who purchase certain types of residential land in each of these states, will attract a foreign duty surcharge as determined in each of those states’ relevant Acts. Legislation in New South Wales and Victoria also imposes a land tax surcharge. The laws in each state vary, however if you currently hold or intend to purchase land through your family trust, then we recommend you seek advice as to whether your trust deed needs updating.
The nature and terms of a family/discretionary trust are such that usually a beneficiary does not have a defined interest in the trust. However, for the purposes of applying the foreign duty surcharge, the legislation in New South Wales and Victoria has deemed each beneficiary in a discretionary trust to have a 100% beneficial interest in the trust fund. This means that if a foreign person (as defined) is not excluded as a beneficiary and from receiving a benefit from the trust, then the trust may be subjected to the higher duty rates. The position is different in Queensland.
What can I do to prevent the beneficiaries of my family trust from being considered a “foreign person”?
If you are establishing a new family trust, you can opt to exclude foreign persons from being a beneficiary and receiving a benefit from the family trust from the outset.
If you have an existing family trust, and it owns or may own residential land, then you can update the deed to exclude foreign persons from being a beneficiary and receiving a benefit from the family trust.
Please contact us if you would like to discuss or arrange the updating of your trust deed; or have queries relating to the payment of a foreign duty surcharge and land tax surcharge under the following legislation:
• Duties Act 1997 (NSW);
• Duties Act 2000 (Vic);
• Duties Act 2001 (Qld);
• Land Tax Act 1956 (NSW); and
• Land Tax Act 2005 (Vic).
Dereen Wallace, Partner
MBA BUSINESS SOLUTIONS
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