For years, the Commonwealth inflicted a foreign family trust regime. Now NSW, Queensland and Victoria impose penalties for foreign beneficiaries and foreign trustees. Every Australian Family Trust is affected.
What if your foreign family trust purchases or holds real estate in Australia? It pays penalty stamp duty and land tax.
But I am not a foreign family trust. Also, I don’t distribute to a foreign beneficiary
Think again. Is your son is living in London? Perhaps your daughter works in Singapore? Is a distant relative that you don’t know living in Italy? Then your Family Trust is a foreign family trust.
Family trusts have a broad range of beneficiaries. Family trusts are designed to have the widest number of beneficiaries that the ATO allows. If the ATO allowed it, you would make every single person on the planet a beneficiary. However, the ATO does not allow that. Still, there are potentially 100,000s of beneficiaries. For example, if you or your trust owns shares in Telstra then all the Telstra shareholders are beneficiaries.
Traditionally, beneficiaries have no ‘interest’ until a distribution is made
That is not the case in NSW and Victoria. Each beneficiary is deemed to have the maximum interest in the trust’s income and capital. Therefore, if a foreign person is a potential beneficiary, the trust is a foreign trust. It does not matter that you don’t know and have never distributed to that person. We estimate that every single Family Trust in Australia has ‘foreigners’ as beneficiaries.
Queensland instead uses ‘default beneficiaries’
Queensland is different. But first, what is the difference between a ‘default beneficiary’ and a ‘general beneficiary’? ‘Default beneficiaries’ are named in the Trust Deed. For example ‘the children of the union of John Smith and Muriel Smith’. (Other expressions for ‘default beneficiaries’ are ‘takers in default’ and ‘primary beneficiaries’.)
While every Family Trust has ‘default beneficiaries’ they are rarely used. You only use ‘default beneficiaries’ if you forget to distribute income at the end of the financial year. I have been practising since 1988. I have never known that to happen. So for most of us ‘default beneficiaries’ are irrelevant. However, this is not so for the Queensland government.
How does NSW and Victoria contrast to Queensland? Queensland only looks at foreign ‘default beneficiaries’. Is one of your ‘default beneficiaries’ a ‘foreigner’, now or in the future? If so, you Family Trust pays the extra Queensland tax.
The foreign family trust surcharge
A foreign family trust incurs the following stamp duty surcharge for land purchased in:
* NSW – 4%
* Queensland – 3%
* Victoria – 7%
To make it clear, you pay the usual stamp duty and then you pay this additional stamp duty on top of that.
A foreign trust incurs the following land tax surcharge for land owned in:
* NSW – 0.75%
* Victoria – 1.5%
Avoid surcharges – amend family trust deed
What if I don’t amend the Family Trust? You pay the extra stamp duty and land tax.
Your Accountant and Adviser are welcome to telephone us to discuss.
Adjunct Professor, Dr Brett Davies, CTA, AIAMA, BJuris, LLB, LLM, MBA, SJD
Legal Consolidated Barristers and Solicitors
Australia wide trust and taxation lawyers
Mobile: 0477 796 959
Direct: 08 6389 0400
National: 1800 141 612
Reception: 08 6389 0100