Australia: Foreign trusts - NSW surcharge land tax and surcharge purchaser duty


  • Trustees of discretionary or hybrid trusts which have purchased or held New South Wales residential land from 21 June 2016.


  • A standard discretionary or hybrid trust is likely to be classed as a 'foreign trust' and subject to these surcharges.
  • The NSW Office of State Revenue (OSR) may now grant a retrospective exemption from these surcharges if the trust deed is amended within six months of the grant of the exemption.


Have the terms of your trust deed reviewed to determine if it is a foreign trust – if it is, then consider varying the terms of the trust and seek this exemption if needed.

New South Wales (NSW) imposes a 0.75% surcharge land tax and 4% additional duty on foreign persons who buy or hold NSW residential land. These surcharges apply on top of the normal land tax and duty that may be payable and can materially increase the cost of property in NSW for a foreign person compared to an Australian, as follows.

Rates of NSW duty and land tax Australian Foreigner
Duty 5.5% 9.5%
Land tax 1.6% 2.35%

Standard discretionary or hybrid trusts would more likely than not be classed as foreign persons for surcharge purposes. This is because the NSW duty and land tax legislation adopts the definition of a 'foreign person' from the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA) with two small modifications for Australian and New Zealand citizens.

Under FATA, a discretionary beneficiary of a trust is generally treated as having a 100% interest in the trust – meaning that any foreign person who is a discretionary beneficiary of a trust will be treated as having a significant interest in the trust, and the trust itself will be considered to be a foreign person. Given that Australia is a nation of immigrants and most standard discretionary and hybrid trusts have a broad beneficiary class which would include foreign beneficiaries, such trusts would likely be a 'foreign person' under this definition and potentially liable for these surcharges. One foreign relative beneficiary is enough to cause a discretionary trust to be foreign.

The broad reach of the FATA 'foreign person' definition is counterintuitive, particularly where a family trust has always been set up to benefit only Australian beneficiaries and the inclusion of potential foreign beneficiaries arises inadvertently due to wide drafting rather than intent. Many trustees of discretionary trusts established ostensibly for Australian beneficiaries may not have been aware of this result and as a consequence may already be exposed to outstanding surcharge liabilities on their NSW residential land holdings. Trusts which may be affected are those which have acquired or held NSW residential property since 21 June 2016 when these surcharges commenced.

Perhaps recognising this lack of awareness in the community and the unfairness of surcharges applying to trusts that really only benefit Australians, the NSW Minister for Finance, Services and Property has approved an administrative concession to exempt such 'Australian' trusts from these surcharges. This administrative concession will be enacted into law with retrospective effect from 21 June 2016. In the interim period, the NSW OSR has issued Revenue Ruling No. G 010 explaining this administrative concession.

Administrative concession

The administrative concession provides the Chief Commissioner of State Revenue with the discretion to exempt a trustee of a discretionary trust from surcharge purchaser duty and/or surcharge land tax if he is satisfied that the trustee is not involved in a scheme or arrangement for the evasion or avoidance of these taxes. A condition of the grant of this exemption is that the trust deed for the trust must be amended within six months of the grant of the exemption, so that the trust is no longer considered a 'foreign person' for surcharge purposes. A failure to amend the trust deed within six months will result in the exemption being retrospectively rescinded.

The benefit of this administrative concession is that it can operate retrospectively to exempt trustees who may already be exposed to surcharges. For instance, a trustee who has already unwittingly bought NSW residential land under the terms of a standard discretionary trust since 21 June 2016 may apply for this exemption to avoid surcharge purchaser duty. Similarly, a trustee of a standard discretionary trust that held NSW residential land at 31 December 2016 but failed to amend their trust deed in time to avoid surcharge land tax could apply for this exemption to resolve this issue.

We can assist in making these exemption applications for affected discretionary and hybrid trusts and also in drafting the required amendments for the exemption to apply. You should be aware that the trust deed amendment required to achieve the required result is not as simple as merely deleting foreign resident beneficiaries. This is because the FATA definition of a 'foreign person' has complex aggregation and tracing rules. It should also be noted that changes to the beneficiaries of a discretionary trust could also trigger duty and tax consequences, so these should be considered before undertaking any such changes.

To many people's minds the trust deed of a discretionary or hybrid trust is a private document which is not publicly available. We would discourage readers from adopting the view that the OSR will not be able to find out whether a discretionary trust is a foreign person because it either does not have access to the trust deed or know if a beneficiary is foreign. The OSR is actively investigating compliance with these surcharges as part of its 2016–2017 Compliance Program.

The 'Purchaser/Transferee Declaration' form which every purchaser of NSW land must complete as part of their stamp duty assessment has questions which specifically require a purchaser to indicate whether they are a discretionary trust and whether they are a 'foreign person' for surcharge purposes. We understand the OSR is auditing these forms in situations where it has other information relating to the nationality of the purchaser. Besides the information provided on these forms the OSR may exchange information with the Australian Taxation Office (which now also administers the Foreign Investment Review Board functions as they relate to residential land). Income tax records indicating the existence of foreign beneficiaries to a trust are another possible way of identifying a foreign trust.

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