Upcoming changes to foreign purchaser duty

Changes to foreign purchaser duty

The State Revenue Office (SRO) of Victoria are set to impose changes from 1 March 2020 in relation to foreign resident duty charges and discretionary trusts.

Who will it impact?

Contracts signed or nominations relating to the purchase of property made from 1 March 2020 by trustees of discretionary trusts, unless the deed contains an appropriate foreign beneficiary exclusion clause, then the trust will be deemed a foreign resident trust and the foreign purchaser additional duty will be charged (currently 8% in Victoria).

This will apply to not only residential purchases, but also purchases of land capable of being used solely or primarily for residential purposes, meaning property developers will also be caught by these provisions.

In the past the SRO has applied a ‘practical approach’ and if trustees proved foreign beneficiaries had not or were unlikely to receive distributions, the trust would not be a foreign trust. This will no longer apply beyond 29 February 2020.

What should you do?

Trustees of discretionary trusts must review their deed/s if they intend to acquire or may acquire residential property in the future, to ensure it contains an appropriate exclusion clause. If not we recommend the deed will need to be amended prior to settlement.

If this is something you would like further information regarding or would like us to assist with the review and amendment process, please contact your solicitor or AFS. Care needs to be taken on these changes to beneficiaries, as they can inadvertently trigger adverse Capital Gains Tax consequences. Call us on 03 5443 0344.