A feature of a discretionary trust is its flexibility to distribute income and capital to a range (or class) of beneficiaries. To achieve these goals, trust deeds have traditionally been drafted to include a wide range of beneficiaries and potential beneficiaries. In many cases however this could cause the trust to be deemed a ‘foreign person’, unintentionally attracting premium rates of stamp duty and land tax. Changes to legislation in New South Wales make the situation even more likely, prompting an urgent review of discretionary trusts to avoid unnecessary foreign surcharges when acquiring or holding residential land.

Background – surcharges applicable to foreign persons

Since 2016 a surcharge of 8% on stamp duty and 2% on land tax applies when ‘foreign persons’ acquire and/or own residential land in New South Wales. The surcharge is payable in addition to the usual stamp duty calculated on the transfer of land and/or land tax charged.

A ‘foreign person’ may be an individual, corporate foreign investor or trust structure. Trustees of discretionary trusts may be deemed ‘foreign persons’ and therefore liable for foreign surcharges if a potential beneficiary is a foreign person.

Given the purposely broad range of beneficiaries often included in a trust deed, a present or future foreign relative of a principal beneficiary (even though there may be no intention to benefit such a person) will fall within this scope, such that the trust will attract the foreign surcharge. An example, taken from Revenue NSW’s Practice Note CPN 004 v2 – foreign surcharges and discretionary trusts, illustrates.

Mr and Mrs Jones (both Australian citizens) are primary beneficiaries of the Jones Family Trust. Other primary beneficiaries include their two children Mark and Peter who are under the age of 10. The trust has potential beneficiaries who include future spouses and children of Mark and Peter and no other potential beneficiaries.

The trust has no existing foreign beneficiaries, but future spouses and children of Mark and Peter could be foreign persons. The trustee is taken to be a foreign person.

New laws require trust deeds to expressly exclude foreign beneficiaries to avoid foreign surcharges

The State Revenue Legislation Further Amendment Act 2020 amends the Duties Act 1997 and Land Tax Act 1956 to the effect that discretionary trusts in New South Wales will be deemed a foreign trust unless:

  • the trust deed expressly excludes potential foreign beneficiaries in its provisions (the ‘no foreign beneficiary requirement’); and
  • the trust deed includes an irrevocable term that prevents it being amended to allow a foreign person to be a beneficiary in the future (the ‘no amendment requirement‘).

The provisions affect trustees of discretionary trusts that hold or propose to acquire residential property.

What should trustees do?

The new laws make it clear that, to avoid the foreign surcharge, the provisions of a discretionary trust must explicitly and irrevocably prohibit foreign persons from being beneficiaries. If it is intended not to include a foreign beneficiary under the terms of the trust, the deed governing it should be reviewed and amended to satisfy the ‘no foreign beneficiary’ requirement and the ‘no amendment requirement’.

Revenue NSW’s Practice Note CPN 004 v2 provides practical guidance on how surcharge purchaser duty and surcharge land tax is to be applied where land is held by a discretionary trust and outlines the transitional provisions applicable with respect to liability of the surcharges.

Essentially, discretionary trust deeds must be amended by 31 December 2020 in accordance with the new legislation to exclude foreign beneficiaries, for the surcharges not to apply. In some circumstances, trustees that have inadvertently incurred and paid surcharge land tax may also be eligible for a refund if the trust deed is amended in accordance with these requirements and by 31 December 2020.

Discretionary trusts that do not contain these provisions will be liable for the surcharges from 1 January 2021.

The transitional provisions for discretionary testamentary trusts operate differently and, for advice tailored to your specific circumstances, we recommend contacting your professional advisor urgently.


Trusts are complex and, to be effective, require ongoing management and professional advice. Care must be exercised when amending a trust deed, not only to ensure that the provisions adequately meet requirements to avoid foreign surcharges but to ensure it is amended in accordance with the terms of the trust, and does not trigger other financial implications.

This article is intended to provide general information only. You should obtain professional advice before you undertake any course of action.

If you or someone you know wants more information or needs help or advice, please contact us on 02 9439 5299 or email [email protected].