SALO - Tax Update - Trusts and Stamp Duty of Property Purchases

The State Revenue Office (SRO) levies an additional 8% stamp duty on the purchase of Victorian residential property where the purchaser is foreign.  What does this have to do with me you’re likely thinking? 

If you purchase a Victorian residential property using a discretionary trust (i.e., a trust that has discretion to distribute the profit and capital of the trust amongst your family members and related entities), from 1 March 2020, it is likely to be deemed a foreign trust.  The SRO’s reasoning for this is that the trust deed provides discretion to distribute the profits and capital of the trust to foreign beneficiaries – even if you don’t have any family members who are non-residents of Australia . 

When these provisions were introduced in 2015, the SRO applied a practical approach so that trusts that have foreign beneficiaries who have not and who are , based on available information, unlikely in the future to receive any distributions, will not be considered a foreign trust.  The SRO has now decided that more than four years on, the foreign purchase rules should now be better understood and the practical approach is no longer required.

What does this mean?  If you are purchasing a Victorian property using a trust from 1 March 2020, you should have your trust deed reviewed and if it includes the ability to distribute to foreign beneficiaries, have the deed amended to specifically exclude them (e.g., include an express exclusion for foreigners).  Importantly, any amendment to the trust deed will have to be done prior to the dutiable transaction completing (i.e., prior to settlement).  This is the direct instruction of the SRO.

If you would like for your deed to be reviewed by a lawyer now or at any time in the future, please let us know and we can provide you with more details.