Discretionary trusts now impacted by NSW duty and land tax surcharges - JHK Legal Commercial Lawyers

21 August 2020

Discretionary trusts now impacted by NSW duty and land tax surcharges

On 24 June 2020, the State Revenue Legislation Further Amendment Act 2020 (NSW) was enacted (“the Act”). The Act is relevant to trustees of discretionary trusts (including discretionary testamentary trusts) who in their capacity as trustee, own or will purchase property under the trust, and also have trust deed which do not prevent foreign beneficiaries of the trust from receiving a benefit under same.

Pursuant to the amendments made under the Act, a Trustee can now be classified as a ‘foreign person’ for the purpose of making payment of NSW Duty and Land Tax surcharges, on property transactions whereby the existing trust deed does not prevent a foreign person from being a beneficiary.


From 21 June 2016, ‘foreign persons’ became liable to pay:

  • a surcharge purchaser duty (currently 8% of the market value of the property) on the acquisition of residential property in NSW (Chapter 2A of the Duties Act 1997); and
  • a surcharge land tax (currently 2% of the unimproved value of the land) for any residential property in NSW owned as at 31 December each year (section 5A of the Land Tax Act 1956 (NSW).

Under the Revenue Ruling G010, the Chief Commissioner had the discretion to exempt liability for purchaser surcharges incurred in relation to duty and land tax. Since the implementation of Revenue Ruling G010 on 13 September 2017, many trustees have seen to the amendment of their discretionary trusts to ensure that foreign persons are excluded from receiving a benefit in accordance with the Revenue Ruling G010.

The Amendments

The Act has now introduced the retrospective legislation that was referred to in paragraph 9 of the Revenue Ruling G010.

The Act has made the following amendments to existing legislation:

  • The Act inserts section 104JA thereby amending Schedule 1 of the Duties Act 1997 (NSW);
  • The Act inserts section 5D into the Land Tax Act 1956 (NSW); and
  • The Act inserts Schedule 2 into the Land Tax Management Act 1956 (NSW).

What this means

The amendments to the Act come into force as of 1 January 2021. This means that up until 31 December 2020, all trustees of discretionary trusts have the opportunity to make amendments to existing trust deeds to ensure that their respective deeds include a provision outlining that the amendments per the Act do not, and will not apply.

A trustee must meet the following amendments to comply with the requirements of the Act:

  • no potential beneficiary of the trust can be a foreign person (the ‘no foreign beneficiary requirement’); and
  • the terms of the trust must not be capable of amendment in a manner that would result in a foreign person being a potential beneficiary (the ‘no amendment requirement’).

In the event a trust deed is not amended prior to 31 December 2020, the trustee will be considered a foreign trustee and the following implications will take effect:

  • Surcharge purchaser duty will apply to the purchase of residential property within NSW;
  • Land tax surcharge will apply annually on the residential property in NSW;
  • Land tax surcharge will be applicable for the land tax years of 2017, 2018 and 2019; and
  • The trust will have no entitlement to receive a refund for surcharge duty or surcharge land tax already paid in the transactions undertaken in the aforementioned land tax years.

Should Revenue NSW conduct an audit, a copy of the trust deed or amended deed together with a declaration as to same, may be requested. If a foreign beneficiary has not nor will not intend to benefit from a current trust, then making amendments to a current trust deed prior to 31 December 2020 would be ideal.

No power of amendment or variation?

The majority of trust deeds will include rules that bind a trustee as well as containing broad powers to amend and/or vary the trust instrument. There are trust deeds however which may include limited powers for variation and/or amendments and in this circumstance, those particular trusts require diligent review.

We make reference to the Commissioner’s Practice Note CPN 004, version 2, which specifies that that trusts which cannot be amended and are not covered in the practice note will be dealt with on a case by case basis.

Our recommendation

If a foreign person has never benefited and likely will not benefit from the trust, we recommend that amending the trust prior to 31 December 2020 is the best course of action. We emphasise that any trustee and/or beneficiary to a discretionary trust seeking to make an amendment to same in accordance with the Act, must ensure that the no foreign beneficiary requirement and the no amendment requirements are complied with.

In the event a trust does not allow for a variation and/or amendment clause, we note that the trustee and/or beneficiary should make a request to Revenue NSW for a determination as to how the trust could be amended to guarantee compliance with the Act, prior to 31 December 2020.

If you require any assistance in making amendments to your current trust deeds to comply with the Act or if you would like to discuss your current trust deed with us, our solicitors at JHK Legal are happy to assist.


Written by Elyzia Menounos