Stamp duty and land tax update

Tin-Lok Shea , Tracy Huo    03 Jul 2020


The NSW Parliament recently passed the State Revenue Legislation Further Amendment Bill 2020 which, among other things, clarified the situation concerning discretionary trusts when it comes to the imposition of surcharge purchaser duty and land tax applicable to foreign persons. The Bill also makes amendments to provide  exemption from and refunds of surcharge purchaser duty and surcharge land tax by the trustee of a discretionary trust if the trust prevents a foreign person from being a beneficiary of the trust.  


Surcharge duty and land tax 

For the past 4 years, the NSW State Government has been imposing a surcharge stamp duty and land tax for foreign purchasers/owners of real property in New South Wales. If residential property is held by a “foreign person”: 

Surcharge stamp duty, of an additional 8% when purchasing property; and  

Surcharge land tax, of an additional 2% annually based on land ownership as at 31 December, 

will be payable on top of the usual rates of duty and land tax (if any).  

Given that the tax-free threshold for land tax does not apply to surcharge land tax, even for a property with a registered land value of $500,000 surcharge land tax of $10,000 is payable (i.e. even when no standard land tax is payable).  


Family trusts potentially subject to surcharge 

People who do not have citizenship or PR are understandably caught by the surcharge regime, but what has surprised many is that a number of locally established family trusts (which generally take the form of a discretionary trust) fall under the definition of “foreign person”. This is because a discretionary trust is deemed to be a foreign person if any one of its potential beneficiaries (even if not a taker in default) is a foreign person. In this regard, it doesn’t matter that the trustee has not and does not intend to distribute to such beneficiaries, and the potential foreign beneficiaries are not named.  

Often, family trust deeds will specify as potential beneficiaries not just named family members, but such members’ families (usually widely defined, e.g. parents, siblings, uncles/aunts, nieces/nephews, grandchildren), as well as companies/trusts in which any of the beneficiaries have an interest, and in many cases charitable institutions (including overseas institutions). To see the wide-reaching operation of this deeming provision, the NSW Revenue website gives the following example: 




Say that XYZ Discretionary Trust is a trust whose beneficiaries include A (as a named person) and any company or trust in which named beneficiaries have an interest. Person A in turn owns 1 share in ABC Pty Ltd, which is majority owned by a foreign person B. In this case, XYZ Discretionary Trust will be deemed to be a foreign person because ABC Pty Ltd is a potential beneficiary of XYZ Discretionary Trust. If XYZ Discretionary Trust purchases real property in NSW, then surcharge purchaser duty and surcharge land tax will become payable. In this case, it doesn’t matter that XYZ Discretionary Trust has never made a distribution to ABC Pty Ltd and never intends to do so.  

By way of further illustration, one recent family trust we reviewed specified as a potential beneficiary “schools, universities, colleges and other educational bodies of any kind either within or outside Australia”, which similarly resulted in the trust being a foreign person.  

Another way in which a family trust can be caught is when it includes extended family members who are not based in Australia.  

The new Bill clarifies and confirms this wide-reaching operation, with a new section introduced stating that “The trustee of a discretionary trust is taken to be a foreign trustee for the purposes of this Chapter unless the trust prevents a foreign person from being a beneficiary of the trust”.     


How we can assist  

If you are looking to acquire (or already own) real property through a family trust, the Bill allows an opportunity for family trusts to put through amendments into the deed to “prevent a foreign person from being a beneficiary of the trust” in order to manage any unintended surcharge purchaser duty consequences.

Although the Bill allows for a buffer period until 31 December 2020, we recommend that your family trust deed be amended as soon as possible if the family trust would be deemed to be a foreign person under the surcharge provisions.  

If you are unsure whether the terms of your trust deed “prevents a foreign person from being a beneficiary of the trust”, H & H Lawyers will be happy to review your trust deed to check whether it might fall within the ambit of the surcharge regimes. If we find that the terms of the trust deed causes your family trust to be deemed a foreign person, we can then further assist in implementing the necessary amendments to the trust deed.  

Key Contacts

Tin-Lok Shea

Tin-Lok Shea

Special Counsel

Tracy Huo

Tracy Huo