27 November 2020
Trusts - Tax consequences where potential beneficiary is a foreign person
My client is looking to set up a discretionary family trust which will have both resident and non-resident beneficiaries. They want to transfer an investment property into the trust.
Will this attract the duty surcharge for non-residents?
Thank you for the question.
The negative tax consequences apply to a trust where a potential beneficiary is a non-resident, even if the potential beneficiary never benefits from the trust.
The following is an extract from the By Lawyers Trusts commentary:
Foreign person surcharge regimes in each state and territory are very broad and apply to discretionary trusts that include foreign persons as potential beneficiaries. If a potential beneficiary of a discretionary trust is a foreign person, the trustee may be liable for the foreign purchaser duty surcharge on acquisition of residential property and the foreign person land tax surcharge on residential property holdings. The fact that a foreign person who is a potential beneficiary may not receive any actual benefit from the trust is irrelevant.
In order to avoid the application of surcharge duty and surcharge land tax the By Lawyers discretionary trust deeds include a clause that both prohibits the trustee from making trust distributions to, or otherwise benefiting, a foreign person, and also prohibits an amendment that has the effect of including a beneficiary or potential beneficiary who is a foreign person.
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