The retrospective effect of The State Revenue Legislation Further Amendment Act 2020 (NSW) on discretionary trusts 

From

Jeff Song

An important reminder that discretionary trusts that have already sold all residential properties before the deadline of 31 December 2020 could still be assessed for foreign surcharge purposes under the new NSW laws even if the trusts have already been wound up.

The retrospective effect of The State Revenue Legislation Further Amendment Act 2020 (NSW) means the surcharge could apply to:

  • transactions from 21 June 2016 in relation to surcharge duty; and
  • 2017 and subsequent land tax years in relation to surcharge land tax.

The window is still open (but not for too much longer) to review whether your discretionary trust is safe from the new foreign surcharge laws in NSW that has retrospective effect.

The transitional arrangement allows trustees to irrevocably amend trust deeds to exclude foreign beneficiaries by 31 December 2020 to ensure the surcharge doesn’t apply from the above effective dates.

Existing discretionary trust

For an existing discretionary trust, its trust deed should be reviewed and amended to exclude foreign persons if:

  • it acquired any residential property in NSW on or after 21 June 2016;
  • it has held a residential property in NSW at any time after 21 June 2016 regardless of the timing of its acquisition and whether it’s since been disposed;
  • while the 31 December 2020 deadline is in relation to NSW residential properties, review and amendment of the trust deed are still recommended if the trust holds a residential property in other jurisdictions in Australia many of which apply surcharge duty and/or land tax to foreign persons;
  • the trust holds substantial interest in an entity which holds (or has held) a residential property as described above (i.e. units in a unit trust or shares in a company)

If your trust deed needs to be reviewed and amended, please provide us instructions urgently by using this link: Exclusion of Foreign Persons in a Discretionary Trust.

Due to overwhelming demand and our goal of ensuring the highest possible quality of service, new instructions received after Wednesday 16 December cannot be guaranteed to be completed by the time of our Christmas closing date of 22 December.

Discretionary trusts that have been wound up and no longer exist

Under the new surcharge laws in NSW, previous stamp duty and/or land tax assessments in relation to trusts while they were still in existence could be reassessed by Revenue NSW for foreign surcharge purposes.

As these trusts have already been wound up, they no longer exist and therefore are not afforded the opportunity to have the deeds amended for foreign surcharge purposes.

While there is no formal public ruling on this issue, Revenue NSW informally advised our firm that an internal decision has been made as follows:

In respect of discretionary trusts that have already been wound up:

  • if none of the beneficiaries who received distributions are foreign persons, Revenue NSW will not reassess previous assessments for surcharge
  • if any of the beneficiaries who received distributions are foreign persons (even one person/entity) they will reassess if applicable for surcharge

For relevant trusts, it is suggested that the following evidentiary documents are submitted to Revenue NSW as soon as possible:

  • evidence that the trust has been wound up;
  • date of when the trust was wound up; and
  • list of all beneficiaries who received the final distributions from the trust and their foreign status.

By Jeff Song, Senior Solicitor – Division Leader Superannuation Online Services

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