- A trustee of a landholding discretionary trust may be liable for foreign surcharges if any one of the potential beneficiaries is a foreign person, even if none of the beneficiaries who in fact receive or are likely to receive distributions are foreign persons.
- Be mindful when dealing with landholding discretionary trusts with a wide class of beneficiaries and consider amending the deed where appropriate.
You lay back in your hammock and take in the glittering ocean and warm, white sand. You’re on a husband- and kid-free holiday with your sister and have seven days of relaxation ahead. You’re about to sip your mojito when your mobile rings. It’s work. ‘Don’t answer it!’ your sister scolds. ‘It must be urgent,’ you reply as you take the call. It’s one of your conveyancers, Sharon. ‘I’m so sorry about calling you on holiday,’ she says anxiously, ‘but we have a big problem regarding that conveyance you’re doing for your brother, and we just don’t know how to handle it…’
‘Well,’ you say, ‘I really didn’t want to be bothered on my holiday, but if you must, send me an email with the details and I’ll call you back.’
Your sister looks at you incredulously. ‘It’s about Kel’s matter,’ you reply. ‘I have to.’
Your brother, Kel, has become quite the wheeler and dealer. He earnt most of his money playing professional cricket for Australia but has now retired. After making some lucrative investments he’s on a pretty good wicket. He recently decided to purchase a residential property in Sydney through his family trust. Kel and his wife, Kath, are the trustees and primary beneficiaries of the trust. The deed gives Kel and Kath a discretion to distribute income and capital to a wide group of beneficiaries.
You had asked Kel why he was using a discretionary trust to buy the property, as he would have to pay land tax and it wasn’t really a secure form of ownership. He basically told you to butt out as he had things sorted with his accountant.
Before taking your holiday, you asked Sharon to finalise and submit the documents to the Duties Office for stamping.
You read the email from Sharon, which explains that, after she dealt with some queries from the Duties Office about the beneficiaries of the trust, the transfer was returned to her with a request for an extra 8 per cent land transfer duty because, based on the information provided, the trust was regarded as a foreign trust. Oh for goodness sake, you think to yourself, how could it be a foreign trust? All of Kel’s family are Aussies. How ridiculous!