Most Family Trust updates to exclude foreigners do not work.
From the 4,600 financial planners, lawyers and accountants that build legal documents on our website throughout Australia, we are seeing a noticeable increase in State Revenue Office rejections of family trust attempts to exclude foreign persons. Many brand-new family trust deeds fail to remove foreigners to the satisfaction of the State Revenue Office.
Also, it is now a mistake to think a sign-off by the Revenue Office is permanent. Past sign-off does not mean that, in years to come, the Revenue Office will continue to consider the foreign variation valid.
If your client has excluded foreigners, get it checked by the lawyer who prepared the Deed of Exclusion — before Revenue does a later audit. From what we are seeing, about 40% of Family Trust variations to remove foreigners do not hold up during State Revenue audits. About a third of brand new Family Trusts that attempt to exclude foreigners do not work or are unnecessary.
When updating a Family Trust to exclude beneficiaries, this is what to look out for.
Four mistakes when excluding foreigners in Family Trusts
These are the common mistakes that we are now seeing on a daily basis:
1. Failure to remove the foreigners via a separate Deed of Variation
Do not exclude foreigners in the main trust deed. Even for brand-new trust deeds, the foreigner exclusion should be done in a separate Deed of Variation. Trying to weave exclusions straight into the main deed is a classic trap:
- A separate Deed of Variation is preferred by some State Revenue offices.
- The Revenue Office can clearly identify the exclusion.
- In later years, if the Revenue Office requires additional requirements, they are more likely to be achievable. And without triggering a resettlement.
- The mixing of the Family Trust Deed with the foreigner removal is more likely to trigger a resettlement.
Best practice: Use a separate Deed of Variation — always keep the foreigner exclusion in a separate Deed of Variation. Even if it is a brand new Family Trust deed.
2. Removing foreigners from more than one jurisdiction
We saw one brand-new Family Trust Deed that attempted to exclude foreigners from NSW, Victoria, and Queensland. Bizarrely, the one piece of land the family trust owned was only in South Australia.
Each state has its own peculiar requirements for removing foreigners. The rules conflict with each other. Most Family Trusts that seek to exclude foreigners from more than one state fail.
Best practice: Separate deeds of variation for each state.
- Cramming Multiple Properties into the Same Trust. More properties = more chances for state rules to clash and create weak spots. One crack exposes the lot. Consequence: Surcharges hit harder and wider than you ever imagined. Fix: Keep properties in separate trusts where you can — much cleaner protection.
- Using Vague, generic, or copied exclusion wording, off-the-shelf phrases or loose definitions gets shredded. Revenue demands razor-sharp, state-specific language — anything less fails. Consequence: Instant “foreign” status — routine land suddenly costs a fortune extra. Fix: Exact, tailored wording pulled straight from the right legislation.
- Not Getting a Private Ruling First Diving in without official sign-off is gambling. Hidden flaws only show up in audits — when it’s way too late and way too expensive. Consequence: Back taxes, penalties, forced fixes that cost far more than doing it right the first time. Fix: Private ruling up front — locks in that you’re safe.
3. “Dormant” or Trigger Clauses that only operate later when your Family Trust gets real estate
Some brand new Family Trusts have the foreigner exclusion sitting dormant. These conditional clauses only operate if your Family Trust later purchases the affected real estate.
The clause to remove foreigners sits dormant until you actually buy the affected real estate. On first blush, it seems to make sense. Afterall why needlessly exclude beneficiaries if you do not have to?
However, reports are coming in that Revenue Officers are calling these ‘conditional’ clauses or loopholes. They are rejected. Instead, State Revenue offices want the exclusions to be fully operative at the time the foreigner’s rules are put in the Family Trust. No waiting around. No, wait and see.
Further, by the time your Family Trust buys the affected real estate, the rules have changed. What was correct three years ago often will not work now.
Adding any kind of condition is wrong. Words such as “If/When/While” do not work. See N & G Grima Family Trust Pty Ltd v Chief Commissioner of State Revenue [2025] NSWCATAD 149 and, for example, section 5D of the Land Tax Management Act 1956 (NSW).
Best practice: At the time you acquire the affected real estate, only then build a Deed of Variation to exclude foreigners. And have the exclusion not be subject to any conditions.
4. Removing foreigners for no valid reason
Removing foreigners from a Family Trust should not be done lightly. Reducing beneficiaries damages the Family Trust. The Family Trust is designed to have as many beneficiaries as possible. Reducing that number for no reason is foolish.
Some clients are approaching young lawyers with the demand to form a Family Trust that excludes beneficiaries. This is the case where the family trust is being used to hold shares or run a business. If there is no real estate in the Family Trust, then the damaging foreigner exclusion should not be inflicted on your Family Trust. Even if the Family Trust is going to hold property, the young lawyer is not checking to see if that particular piece of property is subject to the penalty foreign stamp duty or land tax.
We had one situation where the real estate was already in the Family Trust from many years ago. It did not suffer the land tax penalty. So there was no need to inflict the foreign variation on the Family Trust. However, the young lawyer did not check. The client is now attacking the law firm because the variation was not needed, so it was a wasted legal expense. Worse still, the client’s only child, a daughter, had lived in Rome for two years doing architecture (as one does!), and now she can never be a beneficiary of the trust.
What is best practice when excluding foreigners from a Family Trust?
For new Family Trusts: Build the Family Trust without the exclusion. And then, when required, either immediately or many years later, build a separate Deed of Variation to remove foreigners. All Family Trust Deeds and Family Trust Updates come with a free Deed of Variation to remove foreigners.
So you can build a Legal Consolidated Family Trust Deed today. And in twenty years’ time, if your Family Trust purchases affected real estate at that time, you can build a free Deed of Variation to remove Foreigners. Or if you are immediately purchasing affected land, you can build the Deed of Variation to exclude foreigners immediately.
For old Family Trusts: you can update them here in a separate Deed of Variation of Variation