Peter Johnson highlights the complexities that arise from historical issues in SMSF trust deeds and provides practical strategies to address these challenges. […]
Review Trust Deeds for Trusts Acquiring Victorian Property
Emily Pritchard, current as of: 5 March 2020.
Important note to advisers: review trust deeds of trusts intending to acquire residential property in Victoria BEFORE a purchase is made to avoid inadvertently incurring foreign purchaser surcharge duty of 8%. This is in response to a recent change in approach taken by State Revenue Office Victoria (SRO) which is effective from 1 March, 2020.
While the Duties Act 2000 (Vic) stipulates that a trust with any potential foreign beneficiary will generally be liable for foreign purchaser surcharge duty on residential property acquisition in Victoria, the SRO has previously taken a “practical approach” to its application. Essentially, trusts with potential foreign beneficiaries who were not receiving, or unlikely to receive, distributions were generally not considered to be a foreign trust and were not assessed at surcharge rates of duty.
The SRO has indicated that from 1 March it intends to strictly apply the law, meaning any potential foreign beneficiary of a trust, whether or not they have received a distribution or are ever likely to, could cause the trust to be assessed at the surcharge rate of duty. It is essential that trust deeds are reviewed PRIOR to trusts purchasing residential property in Victoria to avoid inadvertently attracting the 8% surcharge duty.
Where there is no intention to distribute to foreign entities, consideration should be given to amending the trust deed so that there are appropriate restrictions on foreign persons as potential beneficiaries.
Acis standard discretionary trust deeds supplied after June 2017 should already contain provisions to exclude foreign persons for the purposes of the Duties Act 2000 (Vic). Please contact the Acis Legal Services team for more information if your clients intend to acquire residential property in Victoria in a trust.
View SRO’s announcements here:
- See section 3 Duties Act 2000 (Vic) for definitions of Foreign Purchaser & Foreign Trust, section 3B in relation to Substantial Interest and section 3G for the definition of Residential Property.
- As amendments of these types have the effect of changing the beneficiaries, specific duty/tax advice should be obtained prior to execution.