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Discretionary trusts & the foreign purchaser duty surcharge across Australia

Discretionary trusts & the foreign purchaser duty surcharge across AustraliaBroadly, foreign purchaser duty surcharge of 7% to 8% applies on top of the normal duty impost (typically between 5% to 6%) where a discretionary trust acquires relevant real estate and the trust is deemed to be a ‘foreign trust’ in the relevant jurisdiction.

For simplicity, we refer to ‘discretionary trusts with foreign beneficiaries’ that include foreign natural persons, foreign trustees of foreign trusts, foreign corporations and certain other foreign entities as ‘foreign trusts’ and the range of foreign beneficiaries just mentioned as ‘foreign persons’.

Indeed, since the foreign purchaser duty surcharge was first introduced in Victoria (Vic) in 2015, it has been introduced in New South Wales (NSW), Tasmania (Tas), Queensland (Qld), Western Australia (WA) and South Australia (SA). A foreign trust is likely to be paying between 12.15% to 13.5% duty on the acquisition of residential and certain other real estate in each of these jurisdictions (refer to the table below).

There are substantial differences in the legislative provisions and the administrative practices of the various revenue offices in each jurisdiction that results in this being a complex area of law. One of the more difficult aspects of this surcharge is determining whether a discretionary trust will be a ‘foreign trust’ in a particular jurisdiction. This issue becomes even more complex where a discretionary trust is primarily based in one jurisdiction and has property in other jurisdictions.

This article highlights numerous tips and traps to be aware of in respect of discretionary trusts in the above jurisdictions. Naturally, expert advice should be obtained if in any doubt.

The table below gives a snapshot of the different surcharge rates applying across Australia.

Naturally, the quality of the trust deed or variation to the trust deed is a key component to minimising the risk of the foreign purchaser duty surcharge.

Change of foreign person status

Some jurisdictions have a ‘change of foreign status’ regime whereby a purchaser who was not a foreign person at the time of acquisition, and later becomes a foreign person, will be reassessed and be required to pay the relevant additional duty.

For example, under the Qld legislation, if a trust which was not a foreign person at the time of the initial liability arose subsequently becomes a foreign person within three years of that time, additional duty is imposed as if that trust was a foreign person at the initial time of liability.

Similar provisions apply in SA and Tas.

Thus, there is a need to monitor the status of trusts that are covered by a ‘change of foreign status’ regime as it could be that a foreign person subsequently becoming a beneficiary gives rise to a considerable duty liability.

Change of intention regarding land

In Victoria, if a purchaser who acquired commercial land subsequently forms an intention to develop the land for residential purposes, the purchaser is required to notify the Vic State Revenue Office (SRO) and pay the duty surcharge. For example, if a commercial property is subsequently converted to residential use foreign purchaser duty surcharge applies. As noted in the table below, the foreign purchaser duty surcharge generally only applies to residential land.

Revenue office ‘concessional’ approach

The Victorian SRO previously had an administrative concession approach to foreign trust issues via its ‘practical approach’ which considered previous distributions and the actual situation of a trust to consider a trust would not be a foreign trust. However, this concessional interpretation ended from 1 March 2020 with the Vic SRO reverting to a more strict application of the law.

Similarly, QLD’s revenue office in DA000.14.2 provides a similar concessional interpretation, where the Commissioner will consider the likelihood of distribution to a foreign person, taking into account the terms of the trust deed concerning any priority or proportion for sharing between default beneficiaries.

Revenue NSW also had a concessional approach for a period where trustees were able to retrospectively vary trust deeds to exclude foreign persons. However, now that legislation has been introduced in this area this sort of variation will not be available (see here for more).

However, as we know from past experience and what we glean from the above summary, a revenue office’s concessional approach can readily change.

Deed must specifically exclude foreign persons, trusts, companies, etc

The NSW legislation was recently amended to provide that a trustee of a discretionary trust is taken to be a ‘foreign trustee’ if the terms of the trust do not prevent a foreign person (as broadly defined) from ever being or becoming a beneficiary. Any trust that holds property in NSW may need to be amended prior to 31 December 2020 to ensure no additional duty or land tax is imposed (click here for more information).

Control of the trust

The WA surcharge provisions provide that a discretionary trust will be a foreign trust where it is ‘controlled’ by a foreign person. This includes a person that is in a position to influence, either directly or indirectly, the vesting of the whole or any part of the capital or income of the trust. This can include an appointor or trustee of a trust.

Similarly, the SA surcharge provisions provide that a discretionary trust will be a foreign trust where a trustee or an appointor is a foreign person.

Type of land

While in all jurisdictions the surcharge applies to ‘residential’ or ‘residential related’ property, in Tas there is also a surcharge applied to primary production land, albeit at a lower rate (1.5% instead of the usual 8%).

Risks in varying an existing trust deed

Naturally, any variation to a trust deed carries a risk of resettlement which would give rise to duty being imposed on all dutiable property of the trust, as well other tax implications. Accordingly, any variation should be carried out carefully and with consideration to the powers contained in the trust deed.

Where property is yet to be purchased, it may be prudent to simply establish a new trust that contains the relevant foreign person exclusions from commencement, rather than attempt to vary an established trust.

Quality documents & service

DBA Lawyers offers a range of trust services and are often engaged to prepare or vary discretionary and other trust deeds for foreign purchaser surcharge purposes. We have obtained the input of numerous legal experts around Australia to enable us to offer a quality and comprehensive solution.

We also provide legal, tax (Federal and state) and related services in relation to trusts. For more information, please refer to our trusts advice webpage –– click here


With these vast differences in this duty surcharge across the country anyone establishing a trust should obtain advice prior to purchasing property via a trust. Further, trustees with existing trusts need to determine whether there is any need to vary their existing deed to exclude foreign persons from being able to benefit under the trust.

Related articles:

Normal max duty rate 5.5% 5.5% 5.75% 4.5% 5.15% 5.5%
Surcharge Rate 8% 8% 7% 8%

1.5% (primary production)

7% 7%
Max duty if foreign trust 13.5% 13.5% 12.75% 12.5% 12.15% 12.5%
What is a substantial or controlling interest in a trust? more than 50%

for discretionary trust: any beneficiary deemed to have beneficial interest in maximum percentage interest that the trustee is empowered to distribute to that person

at least 20% (or 40% with associates)

for discretionary trust: each person whom the trustee has discretion to distribute the income or property is deemed to have the maximum percentage interest in the trust


at least 50% of the trust interests are foreign interests

for discretionary trust: only a taker in default of an appointment by the trustee can have a trust interest (note related persons of foreign persons included)

50% or more

for discretionary trust: any person who the trustee has a discretion to distribute capital is taken to have beneficial interest in the maximum percentage that the trustee can distribute


at least 50%

for discretionary trust: controlled by a foreign person,

or takers in default with 50% interest in the trust

50% or more

for discretionary trust: one or more of either the trustee, a person who has the power to appoint, an identified object under the trust, or a person who takes capital of the trust in default, is a foreign person.

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This article is for general information only and should not be relied upon without first seeking advice from an appropriately qualified professional.

Note: DBA Lawyers hold regular SMSF CPD online training. For more details or to register, visit or call 03 9092 9400.

For more information regarding how DBA Lawyers can assist in your SMSF practice, visit

By Shaun Backhaus, Lawyer ([email protected]) and Daniel Butler, Director ([email protected]), DBA Lawyers


28 August 2020

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