In previous S & W Insight editions, we have extensively covered the recently introduced Foreign Persons Surcharge legislation. It’s important to note that this legislation varies across different states, including New South Wales (NSW). Therefore, for accountants in Sydney, the following information pertains explicitly to the NSW state-based legislation.
To comply with the legislation and to avoid the surcharge, some recent changes to NSW Revenues guidance may require your trust deed to be amended by 31 December 2020 or at least will require you to submit a new declaration to them, together with a copy of your amended trust deed, by 31 December 2020.
The foreign person’s surcharge is an imposition on family trusts of additional stamp duty applied on the purchase of property and/or additional land tax applied on property ownership.
A family trust is deemed a foreign person unless its trust deed specifically prevents a foreign person from being a beneficiary. The fact that no distribution has been made or is intended to be made to a beneficiary, that is, a foreign person, doesn’t preclude you from being affected by this legislation.
New and amended trust deeds must irrevocably exclude current or future foreign beneficiaries from receiving trust distributions to avoid the surcharge.
NSW Revenue has also advised that all previously completed declarations are no longer valid (i.e. declarations advising them that your family trust had no foreign beneficiaries). They now require a new declaration and a copy of the amended trust deed by 31 December 2020.
In trying to attend to this, care needs to be taken by trustees to ensure that the amendment to the trust deed does not cause a resettlement of the trust. The effect of resettlement is that the trust immediately ends, and a new trust commences, with deemed disposal of all trust assets from the old trust to the new trust – with potentially adverse tax consequences.
While we are not lawyers, as initial guidance, be aware of Australian Tax Office Taxation Determination TD 2012/21 in paragraphs 2 to 5, where an example is provided of where existing entities are excluded from a class of trust beneficiaries. To avoid resettlement, the vital requirement mentioned in that TD is an existing power to change the trust deed in the original trust deed.
If there is a need to adjust the trust deed, a suitably qualified lawyer needs to do this work.
NSW Revenue released the Commissioner’s Practise Note 004 V2 on 1 July 2020, which makes numerous changes to their original guidance in V1 issued on 5 July 2018.
One significant change (example 5) applies to companies and unit trusts owned by family trusts. These companies and unit trusts will now be liable for the foreign person’s surcharge if the family trust deed does not contain a provision to exclude foreign beneficiaries.
If you believe the foreign person’s surcharge may apply to your property ownership and we haven’t already contacted you, please contact us urgently.
Kreston Stanley Williamson Team
*Correct as of November 2020
Disclaimer – Kreston Stanley Williamson has produced this article to serve its clients and associates. The information contained in the article is of general comment only and is not intended to be advice on any particular matter. Before acting on any areas in this article, you must seek advice about your circumstances. Liability is limited by a scheme approved under professional standards legislation.
