Urgent attention required before 31 December 2019 for trusts holding NSW residential property

In our Talking Tax update on 8 November 2019, we flagged the fact that the NSW government had recently introduced the State Revenue Legislation Further Amendment Bill 2019 (Bill), which proposed to make amendments to the Duties Act 1997, the Land Tax Act 1956 and the Land Tax Management Act 1956.  The Bill, if passed as anticipated, will impact clients holding NSW residential property in their discretionary family trusts.

The Bill provides that a trustee of a discretionary trust holding NSW residential property will be deemed a foreign trustee if the terms of the trust do not prevent a foreign person from ever being or becoming a beneficiary (any exclusionary terms must be irrevocable).  Effectively, it is proposed that a discretionary trust that does not exclude foreign persons as beneficiaries will be liable to foreign person surcharge purchaser duty and surcharge land tax even if the trust has never distributed to a foreign person, and intends to never distribute to a foreign person.

Since most standard discretionary trust deeds include a broad class of discretionary beneficiaries for tax planning, the class may include a foreign person, so this is likely to be an issue.

The Bill also contains transitional provisions that have retrospective effect to the time the surcharges were introduced in 2016/17, so if a trustee incurred the surcharge purchaser duty and surcharge land tax, they can claim a refund of the surcharge.  However, for this to apply, the trust must be varied before 31 December 2019.  In our view, the risk is that Revenue NSW will re-assess relevant discretionary trusts for prior year surcharge duty or land tax if they find that the deed for the relevant trust has not been amended by 31 December 2019.

Unfortunately, the Bill has not yet been passed and the NSW Parliament has been adjourned until February 2020, so it will not be passed before then.  However, as noted above, it is expected that the Bill will be retrospective.  We are therefore advising clients and their advisers to urgently review their discretionary trust deeds where the trust holds NSW residential property and, if necessary, seek advice about varying the terms to comply with the requirements under the Bill before 31 December 2019 to avoid their trusts being subject to the surcharges.  Though this is also relevant for other jurisdictions, the limited timeframe (by 31 December 2019) is important for NSW.

Please urgently contact a member of Hall & Wilcox’s private client team if you have clients with trusts affected by the Bill to ensure that action can be taken if required before the Christmas shutdown.

James specialises in estate and succession planning for high-net-worth clients in Australia, the UK, Europe, the US and Asia.

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William Moore
Partner & Head of Private Clients Advisory

William specialises in helping clients work through their personal and business succession planning and achieve their goals.

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Emma Woolley
Partner & Head of Family Office Advisory

Emma has extensive experience advising clients in estate planning/administration, succession, trust structures and disputes.

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Jacqui Barrett
Partner & Head of US Desk

Jacqui assists clients with mergers and acquisitions, corporate structuring, capital raisings and managed investment schemes.

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