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Important changes to Foreign Persons Surcharge on Family Trusts

Disclaimer: The content of this Bulletin is general information only. It is not legal advice. Law Central Legal recommends you seek professional advice before taking any action based on the content of this Bulletin.


by John Wojtowicz (Director - Law Central Legal)

Most states and territories of Australia have now enacted changes to stamp/transfer duty and land tax legislation which may affect nearly every family/discretionary Trust that purchases or holds residential land in some states and all land in others.

For years the rise in number of family trusts as an asset protection structure with tax benefits has been unabated.

According to the ATO:

Unfortunately, the very feature that makes family trusts such an excellent asset protection structure, can now lead the trust to incur higher state duties and taxes.

To be used as an asset protection structure, the trust must have the feature of the beneficiaries in the trust having no defeasible interest in the trust or the trust fund. To achieve this, the trust deed normally has wide beneficiary classes and unfettered trustees powers relating to the distribution of income or capital under the trust. From an asset protection point of view, this enables the beneficiary to argue that the assets in a family trust are not his, where a creditor seeks to enforce a judgement.

Although the unique features of a typical family trust have served it well over the years for asset protection purposes, the existence of a wide class of beneficiaries in the trust deed may now result in the Trustee incurring higher surcharge duties.

Why is your family trust exposed to paying higher duties?

In recent years legislative changes in most of Australia have resulted in an additional duty surcharge (and land tax in New South Wales, Queensland, ACT and Victoria) being levied on “foreign persons” who purchase (and own, for land tax) certain types of land in those states.

Each of the states has enacted their own legislative changes with the wording used and duties imposed being different in each state. For the purposes of this Bulletin, the words “foreign surcharge duty” will be used to discuss the duties imposed in a general sense by the affected states.

The foreign surcharge duty imposed in each affected state varies, but is of an amount that can be of significant concern. For instance in New South Wales, the additional foreign surcharge duty between an Australian resident and a foreign person is 8%. The duty differential between Australian residents and foreign persons and the types of land that is affected varies between the states.

Who is a “foreign person”

For the purpose of this article, we will only focus on the legislation in New South Wales. If you would like any advice in relation to the legislation in New South Wales or any other state or territory of Australia, please contact Law Central Legal by email at or on (08) 9476 4999.

In the NSW Duties Act 1997 - "foreign person" means a person who is a foreign person within the meaning of the Foreign Acquisitions and Takeovers Act 1975 of the Commonwealth, as modified by this section. (s104J(1) Duties Act 1997 (NSW) (“NSW Duties Act”)).

A key part of the definition of a foreign person in the above legislation in the case of a “foreign trust” is where a foreign beneficiary has a “substantial interest” in the trust.

Substantial interest in a trust

Section 18(3) of the Foreign Acquisitions and Takeovers Act 1975 (“FATA”) has determined the extent of a beneficiary’s interest in a family/discretionary trust. The section states:

“For the purposes of this Act, if, under the terms of a trust, a trustee has a power or discretion to distribute the income or property of the trust to one or more beneficiaries, each beneficiary is taken to hold a beneficial interest in the maximum percentage of income or property of the trust that the trustee may distribute to that beneficiary.” (s18(3) FATA)

Problem facing family trusts

At first glance, Trustees may think that their Trust has no foreign beneficiaries, so this does not apply to them. However, bear in mind that the beneficiary list of the standard family trust is not limited to just the immediate family, but may include extended family members. Consider, for example, families that have migrated to Australia after World War 2. Some family members will be residing in Australia and some of the extended family may be residing in the original country of origin.

Wide beneficiary classes contained in most family trust deeds will catch family members that are overseas. The problem is further compounded by the beneficiary list including “eligible trusts” as those trusts in turn could be a “foreign trust”. In New South Wales, if you have a beneficiary that is a foreign person then they are deemed to have a maximum interest in the trust (i.e. 100%) therefore attracting the additional foreign surcharge duty. 

The fact that no distribution has been made or is intended to be made to a beneficiary that is a foreign person is of no help when determining when the trust is affected by the legislation.

Platinum readers should read our platinum section to see whether certain beneficiary classes are exempted from the legislation.

Recent Changes to Legislation

The State Revenue Legislation Further Amendment Act 2020 No 14 (NSW) was assented to on 24 June 2020.

On 1 July 2020 the NSW Commissioner of State Revenue issued the Commissioner’s Practice Note CPN 004 v 2 (effective from 24 June 2020). Some important issues to be noted regarding the transitional provisions include:

Transitional Provisions

No Foreign Beneficiary Requirement

If the trustee of a discretionary trust is liable for surcharge purchaser duty on a transfer of dutiable property that occurred before 24 June 2020 or after that date but before midnight on 31 December 2020, the trustee will still not be liable if the terms of the trust have been amended before midnight on 31 December 2020. If surcharge purchaser duty was paid, the trustee is entitled to a refund if the amendment is made before midnight on 31 December 2020.

If the trustee of a discretionary trust is liable to pay surcharge land tax in respect of the 2017, 2018, 2019 and/or 2020 land tax year, the trustee will still not be liable if the terms of the trust have been amended before due date for the payment of land tax or after the due date but before midnight on 31 December 2020. If surcharge land tax was paid, the trustee is entitled to a refund if the amendment is made before midnight on 31 December 2020.

For those that amended their trust deeds before 24 June 2020:

No Amendment Requirement

If, before 24 June 2020, a trust satisfied the no foreign beneficiary requirement under section 104JA of the Duties Act 1997 or section 5D of the Land Tax Act 1956, the trustee will be exempt from surcharge purchaser duty and surcharge land tax without having to satisfy the no amendment requirement.”

NSW Revenue Correspondence

NSW Revenue have been contacting many trustees of family trusts advising them of the issue of the surcharge land tax to be paid by foreign persons who own land.

One item of correspondence from NSW Revenue states:

Why you need to act now

The Act amends the Land Tax Act 1956 and the Land Tax Management Act 1956 to clarify that a trustee of a discretionary trust is foreign if the terms of the trust do not prevent a foreign person from being a beneficiary of the trust.

In order to avoid any surcharge liabilities, new and amended trust deeds will need to irrevocably exclude current, or future foreign beneficiaries from receiving trust distributions.

Transitional provisions allowing amendments to be made to exclude foreign beneficiaries are now in place and must be made and executed by midnight 31 December 2020. All previously completed declarations are no longer valid.

Resettlement of the Trust

The trustees when amending the trust deed should first ensure that the amendments would not cause a resettlement of the trust. The effect of a resettlement is that the trust immediately comes to an end with potentially adverse tax consequences. Legal advice should be obtained prior to undertaking any amendment.

The issue of resettlement of a trust has been addressed by the High Court in FCT v Commercial Nominees of Australia (2001) 47 ATR 220 and Commissioner of Taxation v David Clark, Commissioner of Taxation v Helen Clark (2011) FCAFC 5. In the latter case the Federal Court had to determine whether changes to property, membership and operation of the trust had caused a termination of the trust for the purposes of Division 6 of Part 111 of the Income Tax Assessment Act 1936 (“ITAA 1936”).

Tax Determination 2012/21 (“TD 2012/21”) sets out the ATO’s Commissioners view in respect to trust resettlements and the application of CGT events E1 and E 2.

TD 2102/21 asserts that an amendment to the terms of a trust will not result in the termination of a trust provided that the amendment of the trust :

  1. is pursuant to a valid exercise of power in the trust deed

  2. does not cause the existing trust to terminate and a new trust to arise

  3. does not result in a particular asset being subject to a separate charter of rights and obligations ( ie the asset has been settled on terms of a different trust).

Paragraphs 2 to 5 of TD 2021/12 provides an example where there is exclusion of existing entities from the class of beneficiaries to the trust.

For a further example of an ATO private ruling on this area of foreign person exclusion see our platinum content.


Should a Trustee of a discretionary trust wish to prevent the “foreign surcharge duty“ applying then the trust deed will need to be amended to exclude a “foreign person” from being a beneficiary and benefiting from the trust.

Recent correspondence from NSW Revenue states that a new declaration would need to completed along with the appropriate variations to the trust deed by the 31st of December 2020.

In NSW the Office of State Revenue Revenue Ruling no G 010 version 2 contains certain criteria for a trust to meet to avoid the foreign person surcharge for purchases of land and the surcharge land tax.

For commentary on this ruling please go to our platinum content.

Law Central has developed a document that amends the family/discretionary trust deed to exclude foreign persons from benefiting from the trust. See Family Trust - Update to Exclude Foreign Persons (NSW).

Alternatively contact Law Central Legal by emailing John at or ringing on (08) 9476 4999 to obtain a quote for amending your family trust deed.

Platinum Members, click here to view content

Disclaimer: The content of this Bulletin is general information only. It is not legal advice. Law Central Legal recommends you seek professional advice before taking any action based on the content of this Bulletin.

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