Wound-up trusts impacted by new foreign surcharge laws in NSW
With the new foreign surcharge laws in NSW for discretionary trusts now in effect and also applying to trusts that no longer exist, clients have been reminded they may need to submit certain evidence to Revenue NSW even if their trust was wound up.
Amendments to the Tax Act 1956 (NSW), Land Tax Management Act 1956 (NSW) and the Duties Act 1997 (NSW) mean that a discretionary trust will be deemed as foreign for the purposes of surcharge land tax and surcharge duty, unless the trust prevents any foreign person from being a potential beneficiary of the trust.
In order to avoid foreign land tax and duty surcharges, the trust deed needed to be amended before midnight on 31 December 2020 to exclude all foreign persons as eligible beneficiaries, and prevent any amendment to the exclusion of foreign persons as beneficiaries, so that the exclusion is permanent and irrevocable.
As previously reported, the trust deed needed to be amended to exclude foreign persons if it had acquired any residential property in NSW on or after 21 June 2016 or held a residential property in NSW at any time after 21 June 2016 regardless of when it was acquired.
In an online article, documentation provider SuperCentral warned that under the new surcharge laws in NSW, previous stamp duty or land assessments in relation to trusts that previously existed could be reassessed by Revenue NSW for foreign surcharge purposes.
As these trusts were already wound up and no longer in existence, SuperCentral noted that clients with these wound-up trusts did not have the opportunity to amend the deeds for foreign surcharge purposes.
While there is no formal public ruling on this issue, SuperCentral stated that Revenue NSW has informally advised that, in respect of discretionary trusts that have already been wound up, if none of the beneficiaries who received distributions were foreign persons, Revenue NSW will not reassess previous assessments for surcharge.
If any of the beneficiaries who received distributions are foreign persons, however, they will reassess if applicable for surcharge, it said.
“For relevant trusts, it is suggested that the evidentiary documents are submitted to Revenue NSW as soon as possible [including] evidence that the trust has been wound up, date of when the trust was wound up and a list of all beneficiaries who received the final distributions from the trust and their foreign status,” the document provider stated.
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates. Miranda has also directed SMSF Adviser's print publication for several years.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.