Recommended action

At Kells, we can assist trustees avoid the duty and land tax surcharge by reviewing the trust deed to confirm variation is permitted and drafting a deed of variation to ensure it satisfies all requirements of the Act.

Kells can also assist trustees to apply for refunds of previously paid surcharge purchaser duty and surcharge land tax for trusts that comply with the Act before 31 December 2020.


The State Revenue Legislation Further Amendment Act 2020  ('Act' received assent on 24 June 2020, bringing significant duty and land tax implications for discretionary trusts that own residential property in New South Wales.

The Act clarifies that a trustee of a discretionary trust is considered a foreign person if the terms of the trust do not prevent a foreign person from being a beneficiary of the trust.

There are transitional provisions that allow amendments to be made to trust deeds to irrevocably exclude foreign persons as beneficiaries – which must be made by midnight 31 December 2020!

If the trust does not exclude foreign persons being a beneficiary of the trust before 31 December 2020, the trustee will be considered a foreign trustee and:

  • land tax surcharge (currently 2% per year) will apply on ownership of residential property in NSW
  • surcharge purchaser duty (currently 8%) will apply to the purchase of NSW residential-related property
  • there will be retrospective operation for the 2017, 2018, 2019 and 2020 land tax years, so that these surcharges will be applied for these years.

There is no tax-free threshold applicable to the surcharge.

What this means for discretionary trusts in NSW?

Significant duty and land tax liabilities may arise for discretionary trusts that own land in NSW if the terms of the trust do not explicitly state that foreign persons are not prevented from being a beneficiary of the trust. It will be irrelevant whether distributions are actually made to the foreign person or not.

To avoid creating tax liabilities, the following issues should be addressed:

  1. the terms of the trust deed must prevent a foreign person from being a beneficiary of the trust (or potential beneficiary)
  2. the terms of the trust must not be capable of amendment in a manner that would result in a potential beneficiary being a foreign person.

Trustees of discretionary trusts with residential property in NSW should start the process to review and amend their trust deed now.

Can the trust deed be varied?

Varying a trust deed requires careful consideration of the terms of the trust, as changes that do not comply with the terms of the trust may be ineffective or void.

Most modern deeds will provide the power to permit variation of the trust deed, however issues may arise when seeking to vary the terms of older trust deeds (or a trust deed with limited variation powers). It is crucial the trust deed is carefully reviewed to confirm the power to vary, to ensure any amendments are legally valid.

In cases where the trust deed does not contain terms creating a power to amend the trust terms, the trustee may need to obtain directions from the Supreme Court to confirm that they can in fact vary the terms of the trust. If this process is required, urgent action will be needed to meet the 31 December 2020 deadline.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.