Does your family trust hold residential real estate in NSW? If so, you must read this.

Does your family trust hold residential real estate in NSW? If so, you must read this.

On 24 June 2020, amendments to the Duties Act 1997, the Land Tax Act 1956, and the Land Tax Management Act 1956 were enacted.

As a result, it is essential that trustees of all discretionary trusts review their trust deeds, in order to avoid surcharge land tax and/or surcharge purchaser duty.


Generally, every discretionary trust which holds real estate in New South Wales is subject to:

  • stamp duty (at the time of acquisition of the property); and
  • land tax (annually)

In addition, “foreign trustees” may be liable for surcharge land tax and surcharge purchaser duty in respect of residential land holdings.

The rates of these surcharges are as follows:

  • surcharge purchaser duty: 8% of the market value of the property;
  • surcharge land tax: 2% of the unimproved value of the land.

Prior to these recent developments, the trustee of a discretionary trust would only be considered a foreign trustee if a beneficiary of the trust was a foreign person.

What are the changes?

The trustee of a discretionary trust is now taken to be a foreign trustee unless the trust prevents a foreign person from being a beneficiary of the trust.

Revenue NSW has issued a Practice Note detailing how this test will be applied.

In short, the effect is that a trust which does not expressly benefit a foreign person may still be liable to surcharge purchaser duty and/or surcharge land tax.

Who is affected?

In all likelihood, a great many discretionary trusts, including ordinary family trusts and testamentary trusts.

For example, most standard family trust deeds will not include an express provision that excludes a foreign person from being a beneficiary.

Rather, it is commonplace for the trust deed to define potential beneficiaries broadly, by reference to their relationship to the trustee (e.g. “the spouse of the trustee”).  In such cases, the trustee will fall afoul of the new provisions and be deemed a foreign trustee, unless an exclusion clause is added.

When do the changes come into effect?

The Commissioner has given trustees until 31 December 2020 to amend their trust deeds so that they comply with these legislative changes.

The changes will not apply to existing testamentary trusts.  However, testamentary trusts created under a will dated after 31 December 2020 will be subject to the new rules.


Revenue NSW possesses a wide range of powers to monitor compliance and recover unpaid surcharges.

In many cases, liability for surcharge land tax is discovered by Revenue NSW when the land holder eventually sells the property.

Similarly, for surcharge stamp duty, liability for surcharge purchaser duty may only be discovered after the landholder has purchased the property.

Each of these circumstances can lead to nasty, unforeseen cash flow consequences for the trustee of a discretionary trust.

We anticipate that Revenue NSW will require further disclosure by trustees and/or their practitioner representatives when properties are bought and sold, with a view to collecting unpaid surcharge purchaser duty and surcharge land tax.

Action required

We strongly recommend that all trustees of family trusts have their trust deeds reviewed by their legal advisor as soon as possible.

If you have any questions, contact Tim Story to discuss.

Our Property Lawyers