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Exclusion of foreign beneficiaries from discretionary trusts

25 June 2024 | News

Falcone & Adams are urging clients to review trust deeds before purchasing additional residential properties via your discretionary trust (including family discretionary trusts).

On 1 March 2020, the State Revenue Office (the SRO) changed its approach to ‘Foreign purchaser additional duty’ (FPAD) in the context of acquisitions of residential property by discretionary trusts (including family discretionary trusts).  The SRO’s approach also applies to acquisitions of a partial share in residential property. The SRO’s new approach is, essentially, that unless the trust deed expressly excludes foreign persons from benefitting then the trust will be treated as a foreign trust and FPAD will be payable in addition to the usual land transfer duty.  The current rate of FPAD payable is 8% of the sale price.

The SRO accepts that variations to a trust deed can prevent FPAD from arising, provided that the variations are validly effected prior to the relevant dutiable transaction occurring (settlement).

The SRO’s change of approach has meant there has been, and will most likely continue to be, an increase in discretionary trusts found by the SRO to be foreign trusts and liable to pay FPAD when acquiring residential property. We strongly recommend that you have your trust deed reviewed and, if necessary, varied to ensure that “foreign beneficiaries” are excluded before purchasing additional residential properties via your discretionary trust.

Although this bulletin relates to Victoria, other Australian jurisdictions have implemented similar approaches.

These changes may not be necessary if you do not wish to exclude foreign persons from benefiting under your discretionary trusts.

If you require our assistance with your discretionary trusts, please do not hesitate to contact our Property Law team on Ph: (03) 5968 3666 to make an appointment.