We have a late update for anyone who has a discretionary trust that owns residential property in NSW.

You may already have received a letter from Revenue NSW about this and not realised its significance, or maybe you have not received one at all.

We emphasise, this applies only if you have a discretionary trust AND it owns residential land in NSW – otherwise you don’t need to worry.

Since 2017 there has been a 2% land tax surcharge on residential land owned by foreign persons. That is 2% of land value, over and above any other land tax payable. If a discretionary trust has a foreign beneficiary, the trust itself is liable for the surcharge.

The State Revenue Legislation Further Amendment Bill 2019, currently before the State Parliament, would take this several steps further.

It provides that unless the terms of the discretionary trust deed specifically and irrevocably prevent a foreign person from being a beneficiary, the trustee of the trust will be “taken to be a foreign person” and liable for the 2% surcharge accordingly.

Therefore, if you are in this situation, even although you do not have and never will have foreign beneficiaries, you are caught. To put it into perspective, a property with a land value of $750,000 will cop a lazy $15,000 in additional land tax.

The legislation has not passed yet, and almost certainly won’t pass this year. However, it is expressed as being operative from the start of the 2020 land tax year (midnight on 31 December 2019) so when it does pass, the Commissioner of State Revenue will presumably be issuing lots of retrospective assessments.

The way to be sure you won’t be caught by this is to amend your trust deed before 31 December 2019 to exclude foreign persons (as defined in the legislation) from being beneficiaries of the Trust.

It would be a short and simple amendment, but if you think this situation might apply to you, we advise you to get onto it in the next few days.

Antcliffe Scott Lawyers