Buying Property in a Trust - beware of new state Duty

Changes to the Victorian State Revenue Office's application of the Foreign Purchaser Additional Duty may affect you from 1 March 2020

What is the Foreign Purchaser Additional Duty (FPAD)? Introduced on 1 July 2015, the FPAD is a surcharge payable by, amongst other entities, Foreign Trusts that acquire residential property in Victoria. As from 1 July 2019, the FPAD is an additional 8% of the dutiable value of the transaction.

Up until 1 March 2020, in determining if a discretionary trust was a Foreign Trust for the purposes of the FPAD, the Victorian State Revenue Office was applying a practical approach - so that trusts that had foreign beneficiaries, who had not and who were not, based on available information, likely in the future to receive any distributions, were not considered Foreign Trusts for the purposes of the FPAD.

However, from 1 March 2020, the Victorian SRO is taking a stricter approach to the application of this surcharge, and will determine that if a discretionary trust has any potential foreign beneficiaries, and no restriction on how much can be distributed to a particular beneficiary, it will generally be considered a Foreign Trust for the purpose of the FPAD.

What does this mean for you? If you are looking to acquire residential property in Victoria via a discretionary trust and a contract of sale was entered into (or nominations were made in a sub-sale context) from 1 March 2020, your trust will be considered a Foreign Trust for the purposes of the FPAD.

Therefore it may be liable for the foreign purchaser additional duty of an additional 8% - unless the trust deed specifically excludes foreign natural persons, foreign corporations and trustees of foreign trusts as beneficiaries of the Trust.

Before purchasing a property, you will need to amend your discretionary trust deed to ensure it becomes exempt from this surcharge. We recommend that you seek advice in reviewing your existing trust deed.

Please call or email us to discuss how these changes will affect you.