From 1 January 2021, trustees of testamentary discretionary trusts may be subject to surcharges on residential land in New South Wales owned or acquired by the trust. In this article, our Estate Planning specialist, Phillip Hewitt, explains what you need to know about this recent law reform.
A foreign person who holds or purchases residential land in NSW is required to pay a:
(together, the Surcharges).
The State Revenue Legislation Further Amendment Act 2020 (NSW) (Act) received Royal Assent on 24 June 2020. Under this Act, a trustee of a discretionary trust will be deemed to be a foreign trustee unless:
(together, the Requirements).
If a discretionary trust is not amended to meet the Requirements by 31 December 2020, then that trust will be liable to pay the Surcharges on any NSW residential land it currently holds or holds in the future.
Importantly, the Act sets out different provisions regarding testamentary discretionary trusts.
An Australian testamentary trust is defined in the Act as a discretionary trust that arises from a will or codicil or the administration of an intestate estate where the deceased was not a foreign person immediately before his or her death.
Significantly, the Act provides that a trustee of an Australian testamentary trust will not be deemed to be a foreign trustee, even if the trust allows foreign beneficiaries to be potential beneficiaries, if:
Testamentary trusts arising from a will or codicil executed on or after 1 January 2021 should include provisions which meet the Requirements where there are no foreign beneficiaries intended to benefit from the trust created.
Where a testamentary trust’s potential beneficiaries may include a foreign person (such as a person who may renounce their Australian citizenship and/or no longer satisfy the ‘ordinarily resident’ test), it may not be appropriate to include such provisions, in which case the Surcharges will be payable on any residential land acquired or held by the trustee of the trust. In such circumstances, we recommend contacting us for specialist advice on the structure of your estate plan.
Please contact our Estate Planning specialist, Phillip Hewitt, for further information or assistance. Phillip has extensive experience advising on effective estate planning strategies for family groups and businesses, helping to guide and manage all matters of asset protection and inter-generational wealth management.
This article was co-written by Lawyer, Laura Bain.