The ‘foreign purchaser’ rules across Australia mean many trust deeds need to be updated to ensure they will not be liable for additional stamp duty or land tax, when they acquire property.
These additional surcharges can be significant – for instance, in New South Wales, the foreign acquirer duty surcharge is 8% of the market value of the property being acquired and the land tax surcharge is 2% of the land value. These costs are in addition to existing government charges such as land transfer duty.
View Legal’s foreign beneficiary deed of variation is intended to ensure the trust being updated will not be a ‘foreign person’, ‘foreign purchaser’, ‘absentee person’ or ‘foreign trust’ for the purposes of foreign acquirer duty (in Queensland, NSW, South Australia, Victoria, Tasmania and Western Australia) and land tax surcharges (in ACT, Queensland, NSW and Victoria).
The variation can also weave in other required provisions, for example to manage the Tax Office rules in relation to income streaming and effectively managing unpaid present entitlements.
Each jurisdiction imposes separate requirements and the deed of variation does not address a number of issues including the following, which should be considered on a case by case basis (with specialist advice sought where appropriate):
- exclusion of any specifically named beneficiaries who are foreign residents, where the legislation or regulatory authority requires them to be expressly removed as named beneficiaries. While the deed of variation removes foreign residents as a class, this will likely be insufficient if foreign beneficiaries are expressly named as beneficiaries;
- where a foreign beneficiary is a default beneficiary, an exclusion may result in a dutiable transaction. The deed of variation should not be used in this scenario unless the duty consequences have been first considered;
- some jurisdictions deem a trust to be a foreign trust if the trustee, a person with power to appoint, or other controller (such as the appointor or principal) is a foreign person. This deed of variation only excludes beneficiaries and does not consider these control positions; and
- to satisfy the NSW rules, the deed of variation is expressed to be irrevocable and must not be varied by the trustee in the future (unless you specifically instruct us to the contrary).
For information in relation to the new foreign beneficiary rules for NSW please see the following article – https://viewlegal.zendesk.com/hc/en-au/articles/360037974411