From 1 March 2020, if a purchaser, acting as trustee of a trust, buys Victorian residential property without carefully reviewing the trust deed, the purchaser risks having to pay an extra 8% duty.
As an example, on a $1 million residential property, the trustee purchaser would pay an extra $80,000 in duty to the State Revenue Office (SRO).
This duty liability arises when a trust deed allows for a ‘foreign beneficiary’ to receive a substantial distribution of the trust assets.
This might not be obvious on a cursory reading of the trust deed.
Many trust deeds – particularly for discretionary trusts – contemplate distributions to a broad class of beneficiaries which can include foreign beneficiaries.
While the SRO has up until now exercised discretion in deciding if a foreign beneficiary is caught within the class of beneficiaries, from 1 March 2020, the SRO will take a much stricter approach.
As a consequence, a trustee purchaser may be liable for duty where assets of a trust can be distributed to foreign beneficiaries, even if it was never intended that those foreign beneficiaries would receive distributions from the trust.
Before signing a contract to buy residential property, trustee purchasers will now need to carefully consider the terms of the trust deed in order to avoid unintended duty consequences.
For more information on the changes, or for advice on the purchase and potential duty consequences of a residential property, please contact Morgan Scholz, Head of Property, on (03) 8600 8890, or Kylie Marotta, Lawyer, on (03) 8600 0756.
For general trust advice, or to review and amend a trust deed to minimise any duty consequences, please contact a member of our Estate Group on (03) 8600 8885.
This Property update was authored by Kylie Marotta, Lawyer.
Note: This update is a guide only and is not intended to constitute legal advice.