Do you need to amend your trust deed?
If you have a discretionary or hybrid trust that owns residential land in New South Wales you may need to have your deed amended before 31 December 2018.
Effective from 21 June 2016, duty and land tax surcharges are imposed where residential land in New South Wales is to be acquired or is owned by foreign persons. Where the land is to be acquired or is owned by a discretionary trust, the trustee of the trust is a foreign person if any foreign persons are beneficiaries (whether or not named in the trust deed) under the trust.
At the time the legislation was passed, Revenue NSW did not publish any guidance as to how it intended to apply the laws. At that time, where a discretionary trust owned residential land, in order to avoid surcharge land tax being imposed for the 2017 land tax year, it was usually necessary to amend trust deeds for the trusts to exclude foreign persons from benefiting under the trusts prior to 31 December 2016.
On 19 September 2017 Revenue NSW published guidance stating that it considered that the exclusion of foreign persons as beneficiaries of a trust needed to be irrevocable in order to avoid surcharge duty and land tax being imposed on the trustee. However, the legislation as passed does not provide that the exclusion of foreign persons must be irrevocable. For this reason, many deed amendments made to exclude foreign persons after the legislation was passed were not expressed as irrevocable.
Where trust deeds were amended prior to 19 September 2017 to exclude foreign persons but the exclusion was not expressed to be irrevocable, Revenue NSW has now agreed to allow trustees up until 31 December 2018 to make further amendments to trust deeds to make the exclusion of foreign persons irrevocable, consistent with Revenue NSW's guidance.
Accordingly, if you had a foreign person trust deed amendment prepared before 19 September 2017, or where you had one prepared after this time and you are not sure whether it is irrevocable, you should contact us before 31 December 2018 to review whether a further deed amendment is needed.