Buying a residential property via a discretionary trust? You could be liable to pay more duty depending on your trust deed!
If you are intending on buying residential property in Victoria (or New South Wales) via an existing trust structure from 1 March 2020, you may need to consider whether you need to establish a new trust or amend your existing trust deed to exclude any potential foreign beneficiaries.
This is because the Victorian State Revenue Office and the New South Wales Office of State Revenue (SRO and OSR) has announced that from 1 March 2020, it is changing its stance on the application of duty surcharge to property owned or acquired by family discretionary trusts. Depending on your circumstance and the terms of your trust deed, you may be liable to pay more tax as a result of this change in approach by the SRO and OSR.
In simple terms, if a discretionary trust has any potential foreign beneficiary (which most are likely to have if the trust deed has not been drafted to specifically exclude them), the trust will generally be a foreign trust for duty purposes. This will result in an additional duty of 8% being applied to any property purchase in this scenario.
For example, on a $1 million property purchase, stamp duty would ordinarily be $55,000. As a result of the change in stance by the Victorian SRO and depending on the terms of your trust deed, stamp duty would be $135,000 if your trust wording does not exclude foreign beneficiaries.
What should I do?
If you are intending on purchasing residential property in Victoria or New South Wales soon or even in the future, via a trust structure, please get in contact with us so we can work with you to establish whether your current trust structure is suitable for property purchases or whether you should establish a new trust. Residential property purchases via family trusts in other States across Australia are also expected to be impacted so please advise us if you are purchasing residential property via a family trust in other states.