For the purposes of the duties and land tax surcharges on foreign persons, “foreign person” means a person who is a foreign person within the meaning of the Foreign Acquisitions and Takeovers Act 1975 (FAT Act) of the Commonwealth, as modified by section 104J of the Duties Act 1997.
For a discretionary trust, each beneficiary to whom the trustee has discretion to distribute the income or property is deemed to have the maximum percentage interest in the income or property that the trustee may exercise a discretion to distribute to them. A beneficiary holds a substantial interest in a discretionary trust if the beneficiary, with any one or more associates, holds a beneficial interest in at least 20 per cent of the income or property of the trust.
The result is that any beneficiary who is a foreign person will almost always be deemed to hold a substantial interest in the trust, and the trustee will be deemed to be a foreign person who will be potentially liable for surcharge purchaser duty and surcharge land tax.
Discretionary trust deeds often give the trustee wide powers to distribute income and/or property, such as to family or other relatives of the settlor and in many cases to charities. If any one of the potential beneficiaries is a foreign person, the trustee may be liable for surcharge. Consequently, a discretionary trust may be liable for the foreign person surcharges even though none of the beneficiaries who actually receive or are likely to receive distributions of income or capital are foreign persons.
The Minister for Finance, Services and Property has approved a variation to statute to allow the Chief Commissioner of State Revenue to exercise discretion to give retrospective effect to amendments of trust deeds which will remove the trustee’s power to make distributions to any person who is a foreign person.
Therefore, to avoid this issue, it is important to have amendment made to your Trust Deed. However, the deadline for amendment will expire shortly so it is imperative you seek legal help in this area.
If you require further assistance with respect to the above, you are welcome to contact our team of experienced taxation and commercial lawyers by clicking here to submit an online enquiry form or call us on 1300 QUINNS (1300 784 667) or on +61 2 9223 9166 to arrange conference or appointment.