NSW discretionary trusts – one shot, one final opportunity to avoid extra land tax and duty on landholdings!

By Andrew Henshaw, Director and Harrison Dell, Senior Associate

In the 2016 State budget, the NSW Government announced that foreign persons would be hit with additional transfer duty and land tax. These amendments became law in June 2016. There has been lingering uncertainty whether the ‘foreign trust’ rules would apply to discretionary trusts (given that most discretionary trusts include a wide range of persons, including ‘foreign persons’).

Due to new legislation passed in June 2020, it is now clear that most discretionary trusts will be considered ‘foreign trustees’, and therefore up for extra taxes, unless amendments have been made to the relevant trust deed. However, trustees of discretionary trusts still have one shot and one final opportunity to avoid these extra (potentially retrospective) taxes.

For the trustee of any trust that owns residential land in NSW, now is the time to amend the trust deed. Do not miss your chance!


Overview of the Changes

The State Revenue Legislation Further Amendment Bill 2020 introduces new section 104JA of the Duties Act 1997 (NSW). Under section 104JA, a trustee of a discretionary trust is deemed to be a foreign trustee unless foreign persons are explicitly excluded from ever benefitting under the trust.

If the ‘explicit exclusion’ is not present, a trustee of a discretionary trust that owns or purchases residential land in NSW will be subject to the following additional tax and duties:

  1. surcharge purchaser duty – an extra 8% of the value of the residential land (e.g. an extra $160,000 on a property purchased for $2 million); and
  2. Surcharge land tax – an extra 2% land tax on the unimproved value of the residential land (e.g. an extra $40,000 per annum on a property with an unimproved value of $2 million).

These changes are retrospective, causing surcharge land tax and surcharge purchaser duty liabilities for the 2017, 2018, 2019 and 2020 land tax year if amendments are not made to the trust deed in time. This is regardless of whether a foreign person did benefit from the trust or not.


What can be done?

The foreign taxes are double, and sometimes triple, the standard transfer duty and land tax rates. Thankfully, a simple amendment to the trust deed can resolve this issue of a trustee being deemed a foreign person.

All discretionary trust deeds that hold NSW land should be amended before midnight 31 December 2020. Per the Commissioner’s Practice Note CPN 004 v2, a discretionary trust deed should be amended so that:

  1. no potential beneficiary of the trust is a foreign person (‘no foreign beneficiary requirement’); and
  2. the amendments are irrevocable (‘no amendment requirement’).

The trust deed amendment must be done explicitly, so there is no possibility of a foreign person benefiting under the trust. This can usually be done by amending the trust deed so that a ‘foreign person’ (as defined by the Duties Act 1997 (NSW)) cannot be entitled to any trust property or have it applied for their benefit. If the above requirements are satisfied by the amendment, surcharge purchaser duty and surcharge land tax should not apply to the trust.


The Pitfalls

If foreign persons can no longer be beneficiaries under the trust, the trustee should understand how the class of beneficiaries has been amended.

Beneficiaries who reside overseas, but have retained their Australian citizenship, can still benefit under the trust without breaching the no foreign beneficiary requirement.

Of course, the trustee must first check whether they have the power to amend a trust deed or whether any of the named beneficiaries are considered ‘foreign persons’. Further, it is important to ensure that the precise terms of the variation power be met. Some variation powers require certain parties consent, some require certain notice provisions to met, and some only allow certain parts of the trust deed to be amended (see for example, Mercanti v Mercanti [2016] WASCA 206, where the variation power contained the word ‘hereinbefore’).

Care must be taken, as it is not always as simple as just amending the deed. For example, if a trust deed does not have an amendment power, the trustee may be eligible for a private ruling from Revenue NSW such as for special disability trusts. Alternatively, an application could be made to the Supreme Court of NSW in extreme cases. This should be planned well before 31 December 2020 to resolve any anomalies in the trust deed.

From a federal tax perspective, if a trustee purports to amend a trust deed without a valid power to do so, they risk a resettlement of the trust and CGT may be triggered on all assets (Taxation Determination TD 2012/21). Similar issues may arise in relation to duty, resulting in a fresh ‘declaration of trust’ (on which duty may be payable).



All discretionary trust deeds should be reviewed, even if they do not own land yet, and a foreign person exclusion clause included if possible. There may be other traps, such as foreign persons benefiting from historical loans from the trust, named beneficiaries who have ceased being Australian citizens and the precise scope of the trust deeds variation power.

Velocity Legal can prepare trust deed amendments and private rulings applications. However, time is of the essence, as there will be a rush in December to get these amendments done in time!

Insight Authors…



Andrew specialises in difficult tax disputes and complex tax advice. He is passionate about getting wins for his clients, solving difficult legal issues and giving clear practical advice.

Andrew acts for a diverse range of private businesses, high net-wealth individuals and family groups. Andrew has been a Director of Velocity Legal since the firm was founded in 2016, and established Velocity Legal’s Sydney practice in 2019.



Senior Associate

A background as an ATO auditor, a decade in the family cinema business and a bachelor of psychology make Harrison an incredible problem solver. His unique insights give practical solutions for all tax and duty matters with a special interest in trusts, business succession planning, international tax and corporate tax issues. Harrison can do more than just heavy lifting with ATO dealings, he’s also an amateur powerlifter.


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Level 10, 580 George Street,
Sydney NSW 2000

Level 49, 360 Elizabeth Street,
Melbourne VIC 3000

Level 10, 580 George Street,
Sydney NSW 2000

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