Family Trusts – beware the 8% duty surcharge

If you are purchasing residential property in your discretionary (family) trust, or may in future, then read on.

In 2015, Victoria introduced an 8% stamp duty surcharge for foreign purchasers of residential property. This applies on top of the regular stamp duty.

Initially, the Victorian State Revenue Office (SRO) took a “practical approach” in determining whether a discretionary trust is a foreign purchaser for stamp duty purposes. They said that “trusts that have foreign beneficiaries who have not and who are, based on available information, unlikely in the future to receive any distributions, will not be considered a foreign trust”.

However, this is no longer the case. The SRO announced that from 1 March 2020, any discretionary trust that does not specifically exclude foreign beneficiaries, may be considered a foreign trust. This reflects that most discretionary trusts are intentionally drafted with wide general beneficiary clauses, to give the trustee broad flexibility for making income or capital distributions. Accordingly, there is a high risk that many discretionary trusts will be caught.

If your discretionary trust is going to purchase residential property, then you should arrange to have the trust deed reviewed by a lawyer to check whether the trust is a “foreign trust”. If that is the case, but you do not require the ability for the trustee to distribute to any foreign natural person, foreign corporation or trustee of a foreign trust, then you should consider amending the trust deed to exclude those beneficiaries, so that the surcharge will not apply.

We have reviewed trust deeds and prepared deeds of variation excluding foreign beneficiaries for many clients, and would be happy to assist you if you are in this situation.

Author: Kent Mallinson