Home » Impending 31 December 2020 deadline for changes to Discretionary Trusts

Impending 31 December 2020 deadline for changes to Discretionary Trusts

Posted by Maria Shaw | 26 October 2020 | Estate Planning

If you are a trustee or beneficiary of a discretionary trust that owns property in NSW, your trust deed may require amendments that exclude ‘foreign persons’ as beneficiaries by 31 December 2020 to avoid additional surcharges.


Transitional provisions introduced in the State Revenue Legislation Further Amendment Act 2020 (NSW) that allow amendments to be made to trust deeds to exclude ‘foreign beneficiaries’ must be made by midnight, 31 December 2020.

Under the transitional provisions, existing trust deeds that fail to exclude foreign beneficiaries will risk opening their trustees to liability for foreign person surcharge duty (presently 8%) on the purchase of residential land in NSW, and surcharge land tax (presently 2%) over such land (together, the foreign surcharges), in addition to ordinary rates.

This risk is retrospective as to residential land purchased since 21 June 2016 (surcharge duty), and for such land held on and from 31 December 2016 (surcharge land tax).

To avoid the foreign surcharges, a trustee of a discretionary trust that is holding (or may hold) residential property in NSW must irrevocably exclude foreign persons as beneficiaries before midnight 31 December 2020.


The State Revenue Legislation Further Amendment Act 2020 (NSW) (‘the Act’) received Royal Assent on 24 June 2020. It provides that a trustee is a foreign trustee if the trust deed does not prevent a ‘foreign person’ from being a beneficiary of the discretionary trust.

A foreign trustee will incur:

  1. Surcharge purchaser duty (currently 8% on the market value of the property) on the acquisition of residential property in NSW); and
  2. Surcharge land tax (currently 2% of the unimproved value of the land) for any residential property in NSW owned as at 31 December each year.

These surcharges apply retrospectively. The surcharge purchaser duty will apply to residential land purchases from 21 June 2016. The surcharge land tax will apply for the 2017, 2018, 2019 and 2020 land tax years.

The foreign surcharges are in addition to ordinary rates of stamp duty and land tax payable.

How might this change affect you?

To avoid being considered as a foreign trustee, the discretionary trust must meet both of the following requirements:

  1. No potential beneficiary of the trust is a foreign person (‘no foreign beneficiary requirement’); and
  2. The terms of the trust deed must not be capable of amendment in a manner that would result in a foreign person being a potential beneficiary (‘no amendment requirement’).

If a trust deed cannot be amended, a private ruling should be lodged with Revenue NSW which will be dealt with on a case by case basis.

Who is a ‘foreign person’?

A ‘foreign person’ is, for the purposes of foreign surcharges, a person who:

  1. Is not an Australian citizen; or
  2. Not ordinarily resident in Australia i.e. does not reside in Australia for at least 200 days per annum.

Foreign corporate entities are also a ‘foreign person’ where a ‘foreign person’ shareholder holds at least a 20% interest in the entity.

Key dates

A trustee who amends their trust deed to include the no foreign beneficiary requirement and the no amendment requirement before 31 December 2020 is exempt from future and retrospective foreign surcharges or is entitled to a refund on already paid foreign surcharges.

This means that as of 1 January 2021, trustees of all discretionary trusts will be subject to foreign surcharges – unless the trust deed contains a no foreign beneficiary requirement and a no amendment requirement.

Do these changes affect testamentary trusts?

A trustee of a testamentary trust (which does not include a no foreign beneficiary requirement and a no amendment requirement) is not a foreign person and therefore does not attract foreign surcharges if:

  1. The will or codicil is executed on or before 31 December 2020,
  2. The deceased died intestate (without a will) before, or within 2 years after 24 June 2020, or
  3. A court order varies the provisions of a will or codicil or rules governing the distribution of an intestate estate on or before 31 December 2020.

If you already have a will in place with a testamentary trust, no action is required.

If you are planning to sign your will with a testamentary trust on or after 1 January 2020, we will work with you to consider the following:

  1. The likelihood of the trust owning residential property in NSW;
  2. Whether your intended beneficiaries are foreign persons or may become foreign persons; and
  3. Whether your estate plan could benefit from two testamentary trusts one for the benefit of Australian beneficiaries and the other for foreign beneficiaries.

What you need to do and consider

We recommend that willmakers who wish to have testamentary trusts in their estate plan and who may have foreign beneficiaries sign their will before 31 December 2020.

If you are a trustee of an existing trust, you should seek legal advice as to whether the Act affects you and if so, consider amending your trust deed also before 31 December 2020.

If you require assistance in updating or amending your trust deeds or have any further private client queries, please contact us on privateclient@nexuslawyers.com.au


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 This publication is © Nexus Law Group and is for general guidance only. Legal advice should be sought before taking action in relation to any specific issues. 

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