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Discretionary trusts and the foreign purchaser duty surcharge across Australia

By tzhang
August 10 2021
5 minute read
2 View Comments
Shaun Backhaus
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Broadly, foreign purchaser duty surcharge of 7 per cent to 8 per cent applies on top of the normal duty impost (typically between 5 per cent to 6 per cent) where a discretionary trust acquires relevant real estate and the trust is deemed to be a “foreign trust” in the relevant jurisdiction.

Since the foreign purchaser duty surcharge was first introduced in Victoria (Vic), it has been introduced in New South Wales (NSW), Tasmania (Tas), Queensland (Qld), Western Australia (WA) and South Australia (SA). A foreign trust is likely to be paying between 12.15 per cent to 13.5 per cent duty on the acquisition of residential and certain other real estate in each of these jurisdictions (refer to the table below).

There are substantial differences in the legislative provisions of the various revenue offices in each jurisdiction that results in this being a complex area of law. One of the more difficult aspects of this surcharge is determining whether a discretionary trust will be a “foreign trust” in a particular jurisdiction.


This issue becomes even more complex where a discretionary trust is primarily based in one jurisdiction and has property in other jurisdictions.

Further, the administrative practices and policies of the relevant state revenue offices can have a significant impact on the way the law is interpreted and applied by those offices and their policies may not coincide with a generally accepted legal interpretation.

Given that a trust may be established for a period of 80 years (or for an unlimited duration in SA) it is likely that the relevant laws and revenue office policies will change and this may result in additional taxes being imposed. As shown below, different revenue offices have already altered their approach to determining if a trust is a “foreign trust”.

With these differences across Australia it is becoming increasingly difficult for practitioners and trustees to be aware of tax liabilities they will incur in a transaction. This unfairly places taxpayers in a situation of not being able to properly plan their affairs without expending significant time and expense.

This additional cost will distort the costs of such transactions and lead to an inefficient market.

The brief outline below highlights issues in respect of discretionary trusts in jurisdictions across Australia. This shows there is a clear need for a more harmonious system that allows practitioners and taxpayers to plan their affairs without unexpected tax liabilities. The States should develop a consistent legislative framework that allows for a trust to be treated the same in respect of foreign purchaser duty across Australia.

The table below gives a snapshot of the different surcharge rates applying across Australia. While this submission focuses on the foreign purchaser duty surcharge, similar issues apply to the land tax surcharge in place in many jurisdictions. The foreign land tax surcharge is also complex and varies from jurisdiction to jurisdiction.

Change of foreign person status

Some jurisdictions have a “change of foreign status” regime whereby a purchaser who was not a foreign person at the time of acquisition, and later becomes a foreign person, will be reassessed and be required to pay the relevant additional duty.

For example, under the Qld legislation, if a trust which was not a foreign person at the time of the initial liability arose subsequently becomes a foreign person within three years of that time, additional duty is imposed as if that trust was a foreign person at the initial time of liability.

Similar provisions apply in SA and Tas.

Thus, there is a need to monitor the status of trusts that are covered by a “change of foreign status” regime as it could be that a foreign person subsequently becoming a beneficiary gives rise to a considerable duty liability.

Change of intention regarding land

In Victoria, if a purchaser who acquired commercial land subsequently forms an intention to develop the land for residential purposes, the purchaser is required to notify the Vic State Revenue Office (SRO) and pay the duty surcharge. For example, if a commercial property is subsequently converted to residential use foreign purchaser duty surcharge applies. As noted in the table below, the foreign purchaser duty surcharge generally only applies to residential land.

Deed must specifically exclude foreign persons, trusts, companies etc

The NSW legislation provides that a trustee of a discretionary trust is taken to be a “foreign trustee” if the terms of the trust do not prevent a foreign person (as broadly defined) from ever being or becoming a beneficiary. Any trust that holds property in NSW may need to be amended prior to 31 December 2020 to ensure no additional duty or land tax is imposed.

The Queensland legislation not only covers foreign persons but also any person or entity that is a “related person” of a foreign person or entity.

The legislation of most states is very broad and is difficult to understand. The situation is far more complex where a trust owns land in multiple jurisdictions given the complex nature of each state’s legislative provisions.

Given the popularity of discretionary trusts among farmers, families, small business owners and SMEs, the complexity of the foreign purchaser surcharges are a real impediment that result in unnecessary costs and inefficiencies.

Control of the trust

The WA surcharge provisions provide that a discretionary trust will be a foreign trust where it is “controlled” by a foreign person. This includes a person that is in a position to influence, either directly or indirectly, the vesting of the whole or any part of the capital or income of the trust. This can include an appointor or trustee of a trust.

Similarly, the SA surcharge provisions provide that a discretionary trust will be a foreign trust where a trustee or an appointor is a foreign person.

Risks in varying an existing trust deed

Naturally, any variation to a trust deed carries a risk of resettlement which would give rise to duty being imposed on all dutiable property of the trust, as well other tax implications. Accordingly, any variation carries additional risks that further complicate this area.

Thus, in seeking to comply with the provisions to exclude a foreign person, a duty liability on the entire value of the trust may arise.

Many variations to trust deeds are performed by unqualified persons (not qualified lawyers) and there is no standard format for varying a deed to comply with the various criteria in each jurisdiction.

Table of foreign purchaser duty rates across Australia








Normal max duty rate







Surcharge Rate





1.5% (primary production)



Max duty if foreign trust







What is a substantial or controlling interest in a trust?




more than 50%

for discretionary trust: any beneficiary deemed to have beneficial interest in maximum percentage interest that the trustee is empowered to distribute to that person





                 at least 20% (or 40% with associates)

for discretionary trust: each person whom the trustee has discretion to distribute the income or property is deemed to have the maximum percentage interest in the trust






at least 50% of the trust interests are foreign interests

for discretionary trust: only a taker in default of an appointment by the trustee can have a trust interest (note related persons of foreign persons included)





              50% or more

for discretionary trust: any person who the trustee has a discretion to distribute capital is taken to have beneficial interest in the maximum percentage that the trustee can distribute


at least 50%

for discretionary trust: controlled by a foreign person,

or takers in default with 50% interest in the trust





50% or more

for discretionary trust: one or more of either the trustee, a person who has the power to appoint, an identified object under the trust, or a person who takes capital of the trust in default, is a foreign person.

By Shaun Backhaus, lawyer (This email address is being protected from spambots. You need JavaScript enabled to view it.) and Daniel Butler, director (This email address is being protected from spambots. You need JavaScript enabled to view it.), DBA Lawyers

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Tony Zhang

Tony Zhang

Tony Zhang is a journalist at Accountants Daily, which is the leading source of news, strategy and educational content for professionals working in the accounting sector.

Since joining the Momentum Media team in 2020, Tony has written for a range of its publications including Lawyers Weekly, Adviser Innovation, ifa and SMSF Adviser. He has been full-time on Accountants Daily since September 2021.