By Andrew Spalding, Partner, Marina Raulings, Partner and Nicola Crowle, Senior Associate
From 1 March 2020, the Victorian Commissioner of State Revenue (Commissioner) will no longer apply his ‘practical approach’ when assessing whether a discretionary trust is a foreign trust for foreign purchaser additional duty (FPAD) purposes.
Under the Commissioner’s practical approach, a discretionary trust is not treated as a foreign trust for duty purposes if no foreign beneficiary has received, or is likely to receive, a distribution from the trust.
As a result of this change in approach, discretionary trusts which have not had their trust deeds amended to exclude foreign persons from the class of beneficiaries will be deemed to be foreign trusts and any dutiable transactions undertaken by the trustee of the discretionary trust in respect of Victorian residential land will be subject to FPAD of 8% (in addition to the general rates of duty of up to 5.5%).
The Commissioner will continue to apply his practical approach to dutiable transactions where the contract of sale was entered into, or where the nomination was made (in a sub-sale context), before 1 March 2020.
Taxpayers wishing to enter into a contract, or be nominated under a contract, to purchase Victorian residential land on or after 1 March 2020 (using a discretionary trust as the purchaser or as an investor in a corporate/unit trust purchaser) should ensure that their discretionary trust deeds are irrevocably amended before settlement to exclude foreign beneficiaries. From 1 March 2020, this will be the only mechanism to ensure that the 8% FPAD will not apply to a property transaction involving a discretionary trust.
Prudent taxpayers may wish to consider amending their discretionary trust deeds now to ensure that this is not overlooked down the track.
Mills Oakley can assist you with reviewing and amending your discretionary trust deed or establishing a new discretionary trust with the required foreign beneficiary exclusion.
For further information, please do not hesitate to contact us.