|Ruling number||G 010 version 2|
|Date issued||13 September 2017|
|Issued by||Kelly Wood|
Chief Commissioner of State Revenue
|Effective from||13 September 2017|
For the purposes of the duties and land tax surcharges on foreign persons, “foreign person” means a person who is a foreign person within the meaning of the Foreign Acquisitions and Takeovers Act 1975 (FAT Act) of the Commonwealth, as modified by section 104J of the Duties Act 1997. Revenue Ruling G9 explains the definition in detail.
For a discretionary trust, each beneficiary to whom the trustee has discretion to distribute the income or property is deemed to have the maximum percentage interest in the income or property that the trustee may exercise a discretion to distribute to them. A beneficiary holds a substantial interest in a discretionary trust if the beneficiary, with any one or more associates, holds a beneficial interest in at least 20 per cent of the income or property of the trust (see the definition of 'substantial interest' in section 4 of the FAT Act).
The result is that any beneficiary who is a foreign person will almost always be deemed to hold a substantial interest in the trust, and the trustee will be deemed to be a foreign person who will be potentially liable for surcharge purchaser duty and surcharge land tax.
Discretionary trust deeds often give the trustee wide powers to distribute income and/or property, such as to family or other relatives of the settlor and in many cases to charities. If any one of the potential beneficiaries is a foreign person, the trustee may be liable for surcharge. Consequently, a discretionary trust may be liable for the foreign person surcharges even though none of the beneficiaries who actually receive or are likely to receive distributions of income or capital are foreign persons.
The Minister for Finance, Services and Property has approved a variation to statute to allow the Chief Commissioner of State Revenue to exercise discretion to give retrospective effect to amendments of trust deeds which will remove the trustee’s power to make distributions to any person who is a foreign person.
This Ruling explains the operation and effect of this variation to statute.
The surcharge purchaser duty and surcharge land tax legislation is to be administered on the basis that the Chief Commissioner has a discretion to exempt a trustee of a discretionary trust from surcharge purchaser duty and/or surcharge land tax if satisfied that the trustee is not involved in a scheme or arrangement for the evasion or avoidance of these taxes1.
The trust deed must be amended so that the trustee is no longer liable for the taxes. Where it is not possible to amend the deed prior to when a dutiable transaction occurs or a land tax liability arises, the trustee may apply to the Chief Commissioner for an exemption to be granted on the proviso that the amendment has been made or will be made within 6 months after granting the exemption. If the trust deed is not amended within the required timeframe, the exemption will be rescinded with retrospective effect.
This variation to statute is to operate with retrospective effect from 21 June 2016, until retrospective legislation is passed.
If the trustee of a discretionary testamentary trust acquires property under the terms of the will and if the deceased was not a foreign person at death, the Chief Commissioner may exempt the trustee of a discretionary testamentary trust from surcharge purchaser duty.
If the deceased was not a foreign person at death, no surcharge land tax will be payable by the trustee on the principal place of residence of the deceased, if the land was owned and occupied by the deceased at the time of death. The Chief Commissioner may also exempt the trustee of a discretionary testamentary trust from surcharge land tax on any other land that forms part of the deceased person’s estate. The exemption from surcharge land tax will only be available for a period of two years after the date of the deceased person’s death.
This provision will operate with retrospective effect from 21 June 2016, until retrospective legislation is passed.