The Victorian State Revenue Office (SRO) is changing their approach to discretionary trusts which purchase property with a contract date post 1 March, 2020.
WARNING
If your trust purchases property under a contract post 1 March, 2020 it may be necessary to have your deed amended to specifically exclude a foreign natural person as potential beneficiary. Note – this must be done prior to the dutiable transaction being completing (that is, prior to settlement).
HISTORY
With effect from 1 July, 2015, the SRO imposed additional stamp duty on “foreign purchasers” of residential property – 3% for the first year, another 7% from 1 July, 2016 to 30 June, 2019 and 8% from 1 July, 2019.
In imposing the extra stamp duty the SRO used the concept of “controlling interest” in determining if an entity such as company or trust was foreign or not (the trigger being a more than 50% interest).
For family discretionary trusts the class of general beneficiaries may include a wide class of family members, any one of those being a foreign natural person, which would mean the trust would be considered a foreign trust as it is taken that a beneficial interest is the maximum percentage of the capital of the trust that the trustee is entitled to distribute (ie 100% in the case of discretionary trusts).
The SRO initial approach was in part : “trusts that have foreign beneficiaries who have not and who are, based on available information, unlikely in the future to receive any distributions, will not be considered a foreign trust”.
This approach is being reversed from 1 March, 2020 – the effect is that where a trust has a potential foreign beneficiary, the trust will generally be a foreign trust.
We strongly recommend obtaining legal advice upon signing any property purchase contract. Please contact us for more information.