Family Trusts – extra duty and land tax surcharges on foreigners

States punish ‘foreigners’ in family trusts for stamp duty and land tax

We amend Family Trust deeds to exclude foreign persons from being beneficiaries. However, we believe it is incorrect to have your initial trust set up to exclude foreigners. Instead, you should do a “Deed of Variation to Remove Foreigners” for the relevant States, as required.

We do not automatically exclude foreign persons. This excludes beneficiaries permanently. For example, your children may return to Australia.

There are eight States and Territories in Australia. All have different rules on what is a ‘foreign person’ and how to ‘remove’ them from classes of beneficiaries. There is no general rule on a ‘foreign person’ and how each State’s legislation is applied. Indeed, in Victoria and Tasmania, the legislation is so ambiguous that changes are expected.

In NSW the regulator has signed off on our amendments:

Even then, after you build the document you must submit it to the NSW State Revenue for its confirmation that it is acceptable – before you purchase or deal with NSW real estate.

Outside of NSW, we amend your family trust as a bespoke service

Other than NSW, we amend your trust deeds as a bespoke service. We tailor each family trust to exclude foreign persons. This is based on the applicable jurisdiction and where the real estate is held.

Legal Consolidated is one of Australia’s leading tax law firms – why can’t it amend the Family Trusts online to remove ‘foreigners’?

Regulators, outside of NSW, refuse to sign off on suggested wording. But the legislation is so ambiguous that we want the sign-off. For example, consider Victoria’s legislation of ‘foreign person’. Victoria foreign land tax surcharge rules refer to the trust’s ‘default beneficiaries’. (Sometimes referred to as ‘specified’, ‘takers in default’ or ‘named’ beneficiaries.) Changing a ‘default beneficiary’ is a fundamental change to the trust. This leads to a ‘resettlement’. The State Revenue Office of Victoria states that the trust was resettled and you have to pay stamp duty on all dutiable assets of the trust. The ATO also states it is resettlement and charges CGT on all trust assets.

What if a ‘foreign person’ beneficiary moves to Australia? Is a person holding an Australian permanent visa a ‘foreign person’? What if the trust holds land in more than one State. One amendment may invalid other amendments. This is new and unsettled law, and it changes in each State.

Can’t I just do one update to remove foreigners and it works throughout Australia?

Sorry. A ‘foreign person’ and how they treated is different in every State.

These are the considerations:

  • can the foreign person receive a distribution of capital?
  • what if the trustee agrees never to distribute to a ‘foreigner’?
  • is a foreign person actually named in the deed?
  • does the foreign person have a ‘substantial interest’ in a trust estate – but yet no beneficiary has an interest in a trust – unless they are the appointor/guardian/controller/trustee/principal
  • is a foreigner involved in the decision making? Perhaps your Dad in London bosses you around in Australia

Additional rates of duty and land tax for ‘foreign trusts’?

Victoria: total stamp duty surcharge rate is 12.5% (5.5%, plus an additional 7%). Regarding land tax, additional land tax of 1.5% is payable on top of the land tax already payable.

NSW: additional transfer duty, payable on top of the normal stamp duty (which operates on a scale), is 4%. For land tax the additional land tax of 0.75% – payable on top of the land tax already payable.

Queensland: additional stamp duty, payable on top of the normal stamp duty (which operates on a scale), is 3%.

After I amend the Family Trust should I get a ruling from the State duty and land tax office?

Yes. Because of the ambiguity, even in NSW, you should send your deed to the regulator to get their confirmation, in writing, that your trust now excludes ‘foreigners’ for that particular State or Territory. If you don’t want to do that, then your accountant can do it for you.

For further help get your accountant, lawyer or financial adviser to email us the Family Trust to review.

Adjunct Professor, Dr Brett Davies, CTA, AIAMA, BJuris, LLB, LLM, MBA, SJD
Legal Consolidated Barristers and Solicitors
Australia wide law firm
Mobile: 0477 796 959
National: 1800 141 612

Further reading

New South Wales

Land Tax Act 1956 (NSW) June 2016

Revenue Ruling No. G 010: http://www.revenue.nsw.gov.au/info/legislation/rulings/general/g010

Stamp duty – refer S.104J of the Duties Act 1997 (NSW), and SS.4 and 18 of the Foreign Acquisitions and Takeovers Act 1975 (Cth). From 21 June 2016.

Land tax – refer S.5A(6) of the Land Tax Act 1956 (NSW) and SS.4 and 18 of the Foreign Acquisitions and Takeovers Act 1975 (Cth). From 31 December 2016.

Victoria

Stamp duty – refer SS.3, 3B and 28A of the Duties Act 2000 (Vic). Applies from 1 July 2015.

Land tax – refer S.46IA of the Land Tax Act 2005 (Vic) (and S.3 of that Act for the relevant definitions). Applies (basically) from 31 December 2015.

Victorian State Revenue Office: http://www.sro.vic.gov.au/foreignpurchaser

Queensland

Queensland Government Website: https://www.business.qld.gov.au/industries/service-industries-professionals/professional-financial-services/transfer-duty/investors/afad

Stamp duty – SS.57 and 60 of the Duties Act 2001 (Qld). From 1 October 2016.

Tasmania

https://www.sro.tas.gov.au/property-transfer-duties/duty-surcharge-for-foreign-investors

See also:

Update the Family Trust for Bamford streaming only:

family trust deed family discretionary trust deed

Or, update Bamford streaming PLUS update the rest of the Deed:

family trust deed family discretionary trust deed

Instead, update for Bamford streaming PLUS the Deed PLUS update the Appointor & Trustee:

family trust deed family discretionary trust deed

Or just update the Trustee:

family trust deed family discretionary trust deed

Or just update the Appointor:

family trust deed family discretionary trust deed


Set up a new Family Trust Deed:

family trust deed family discretionary trust deed

Prepare the Annual Trust Distribution Minutes:

family trust deed family discretionary trust deed


Deal with Division 7A (loan or UPE from your company to the Family Trust):

family trust deed family discretionary trust deed

Or, to forgive the ‘loan account’ and UPEs (loans from humans to Family Trust):

family trust deed family discretionary trust deed


Change the name of your Family Trust:

family trust deed family discretionary trust deed

To wind up and vest the Family Trust, when you no longer want it:

family trust deed family discretionary trust deed


Telephone us for legal advice on building this document.

Adjunct Professor, Dr Brett Davies, CTA, AIAMA, BJuris, LLB, Dip Ed, BArts(Hons), LLM, MBA, SJDFamily Trust Deed Family Discretionary Trust
Legal Consolidated Barristers and Solicitors
National Australian law firm

Toll free: 1800 141 612
Mobile: 0477 796 959
Email: brett@legalconsolidated.com
Skype: brettkennethdavies


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