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Victoria ends relief on foreign trusts surcharge duty

Thursday, 6 February, 2020

The Australian state of Victoria has announced the end of its grace period for foreign purchaser additional stamp duty on residential property.

Victoria, like the neighbouring state of New South Wales, has seen increasing demand for urban property in recent years, with a significant number of buyers coming from abroad. Both have taken steps to deter non-resident investors from buying residential property by imposing additional taxes on foreign buyers, including foreign trusts. For example, New South Wales imposes surcharge purchaser duty at 8 per cent and surcharge land tax at 2 per cent on residential land purchases by foreign persons.

In the past, discretionary trusts that have foreign beneficiaries have not been treated as foreign trusts for tax purposes, provided these beneficiaries have not received any distributions and were unlikely to receive any future distributions. However, this 'practical approach' is about to change.

From 1 March 2020, the Victoria State Revenue Office will treat discretionary trusts that have potential foreign beneficiaries as a foreign trust for surcharge tax purposes, unless the trust's deed is amended before the transaction to expressly exclude the foreign persons as potential beneficiaries of the trust.

'It is therefore important that trustees purchasing residential land in Victoria review their trust deeds prior to the settlement of any land contract to avoid foreign purchaser additional duty', said law firm Johnson Winter and Slattery.

However, New South Wales has not yet taken this step, because the relevant law, the State Revenue Legislation Further Amendment Bill 2019 has not passed the NSW parliament, and the Bill's 31 December 2019 deadline for the amendment of trust deeds has now passed.

As yet, it is not known when the legislation will be enacted, and the deadline for amendment of trust deeds has been extended to later in 2020. Meanwhile, trustees who inadvertently incurred surcharge land tax may receive an exemption or refund if their trust deeds are amended in accordance with the legislation.

Sources