- If you purchase residential land in Victoria via your discretionary trust, you may be hit with additional stamp duty of 7% of the purchase price by reason of y our trust being regarded as a “ foreign trust ” – most discretionary trust deeds allow the trustee to distribute trust capital to any beneficiary and defines the class of beneficiaries extremely broadly. If there is any possibility that a very distant relative may be a foreign person, your trust may be deemed to be a foreign trust for stamp duty purposes. On the purchase of a $2m. property, this would mean that the stamp duty payable would increase from $ 110,000 to $250,000.
- If your discretionary trust is regarded as an “ absentee trust ” under the Land Tax Act, as from 1 January 2017, it will be required to pay a surcharge of 1.5% in addition to the land tax already payable. For a $2m. property, this will generally mean that land tax will increase from $17,360 to $47,360. Your trust may be regarded as an absentee trust if any beneficiary specifically named in the trust deed is not an Australian citizen or does not generally reside in Australia.
Foreign investment review board (FIRB) approval issues for discretionary trusts
Similar issues arise in relation to “ foreign persons ” wishing to acquire property in Australia. Again, your trust may be regarded as a foreign person which means that it may be required to apply for FIRB approval to purchase land in Australia and may be prohibited from purchasing established dwellings.
Your discretionary trust deed defines the potential beneficiaries of the trust by reference to pa rticula r relatives of a named person (e.g. children, grandchildren, siblings, children of siblings and their spouses). The trustee has full discretion as to whom the capital of the trust may be distributed:
- One of the children moves to the USA and, as part of taking USA citizenship, renounces Australian citizenship;
- One of the grandchildren marries a person who is not an Australian citizen nor a holder of a permanent visa;
- A child of a sibling marries a person who is not an Australian citizen nor a holder o f a permanent visa.
In all of the above examples, the trust will be regarded as a foreign trust for Victorian stamp duty purposes and as a foreign person for FIRB purposes.
Review your trust deed now
All of these issues can be avoided by some simple ame ndments to your trust deed.