29/03/2017

Amend your discretionary trust deeds now to save unexpected duty.

Changes to duties and land tax legislation by state governments keen to be seen to be doing something about affordable housing might catch lots of unsuspecting family trust deeds.  Act now before it becomes a costly problem!

Affordable housing has become a major political football over the last couple of years with house prices in Sydney, Melbourne and Brisbane skyrocketing. Reasons for the lack of affordability differ depending on the agenda of the speaker.  One reason that is often given (whether accurate or not) is the high number of foreign persons and companies that invest in housing in those capital cities.

To combat that perceived cause NSW, VIC and QLD have introduced additional purchaser duty and or land tax payable by those foreign persons and companies.  The revenue obligation is drafted widely so that it captures trusts where a foreign person or company could theoretically benefit from the real estate purchased by the trust.

So if you purchase a property using a trust, you may have to pay more duty and more land tax regardless whether any beneficiary is actually a foreign person or company.  The theoretical possibility is enough.

The solution is to amend your deed to say that such a foreign person or company cannot benefit from the trust.

We can review your existing discretionary trust deed and draft amendments to exclude foreign persons and companies from being beneficiaries of the trust.  This means that in the event that residential property is acquired by the trust in NSW, VIC or QLD a foreign person or company will not be included in the wide categories of beneficiaries.

This amendment could potentially save a trust from paying tens of thousands of dollars in additional duty (particularly with high residential property prices in Australia).  For example, in NSW the additional foreign purchaser duty is currently 4% of the value of the foreign person’s interest in the property.

The stamp duty payable on the acquisition of a $1.5 million dollar residential property is $67,990.00.  If the whole property is acquired by a trust with a potential foreign beneficiary, an additional $60,000 would be payable (total stamp duty of $127,990 payable on the acquisition – yikes!).

Be careful! Excluding foreign persons and companies as potential beneficiaries for purchaser duty and land tax purposes means that those foreign persons and companies will not be able to benefit or receive income from any assets or investments of the trust.  So before any amendments to the trust deed are made the activities of the trust should be considered and appropriate advice should be sought from an adviser.

If you would like assistance with the review and amendment of existing trust deeds to avoid a potentially large tax bill, please contact Townsends Business & Corporate Lawyers on (02) 8296 6222 or email our Help Desk with your inquiry.