By and -


  • Always check the trust’s vesting date.
  • Where appropriate, ensure the trust deed, if purchasing a residential property, excludes foreign beneficiaries.
  • Consider whether surcharge duty applies.

You are relaxing by an open fire nursing a mug of warm mulled wine when your phone starts to ring. You look down and see it is work. Although you had asked not to be disturbed on your skiing holiday, after spending most of the day splayed out on the snow in the starfish position unsuccessfully trying to learn how to ski, it is a welcome distraction. You take the call and it is your personal assistant, Lian.

Lian tells you that your longstanding client, Daryl, has called in quite a flap about some advice he received from an estate planning lawyer, Amy, you referred him to a couple of months ago.

You work as a sole practitioner mainly in property law, although you also prepare straightforward estate planning documents. Daryl and his wife, Sal, have quite a complex structure, including numerous landholding family trusts, so you referred them to Amy, as you used to work with her in another firm and she was an excellent lawyer. You kept in touch with Amy and knew she had started to specialise in trusts, taxes, and duties so you were certain Daryl and Sal were going to be in good hands.

The last time you acted for Daryl and Sal was about a year ago when they purchased a residential investment property in the name of their family trust, Castle Properties Trust.

At the time, you advised Daryl and Sal that if they owned the property through their family trust, they would not be able to take advantage of the tax-free threshold for land tax. However, Daryl told you the firm opinion of his accountant was that the benefits from being able to split tax far outweighed this cost. Accepting this advice, you proceeded with the purchase by the Castle Properties Trust.

You ask Lian to email you a copy of Amy’s advice to have a look at before you call Daryl.

A few minutes later the email arrives. You fetch another mug of mulled wine, sit back, and start to read. You finish the letter, your stomach churns and suddenly the thought of lying on the hard, cold snow while four years old glide smugly past you doesn’t seem like such a bad place to be after all.

The first sting 

Amy has reviewed the terms of the Castle Properties Trust and points out that the trust vested two months ago.

The default beneficiaries are ‘children of any of the first group of beneficiaries’. The first group beneficiaries are Daryl and Sal. They have three adult children: Tracey, Steve and Wayne. The property is now held by the trustee, Castle Investments Pty Ltd, on trust for them.

You know Daryl and Sal are going to be extremely upset about this. They had a big falling out with Tracey about five years ago and Wayne, who unfortunately has a drug addiction that led to him holding up a service station, is in gaol.

The second sting

In addition to paying land tax, Amy has also advised that the trust is liable to pay surcharge land tax as the deed does not prevent a foreign person from being a beneficiary of the trust.

According to CPN 004v2 issued by the Commissioner of State Revenue, a discretionary trust is considered to prevent a foreign person from being a beneficiary of the trust if (AND only if) both of the following requirements are satisfied:

(a) no potential beneficiary of the trust is a foreign person (the ‘no foreign beneficiary requirement’) AND

(b) the terms of the trust are not capable of amendment in a manner that would result in there being a potential beneficiary of the trust who is a foreign person (the ‘no amendment requirement’).

The surcharge rate is two percent and there is no tax-free threshold applicable to the surcharge.

The third sting 

You stamped in-house and must have overlooked, or failed to adequately consider, question 4.1 in the purchaser declaration because Amy’s advice confirms that the trust (for the same reason it must pay surcharge land tax) should have also paid surcharge duty when it purchased the property. The surcharge rate is eight percent and is on top of any transfer duty already paid.

Amanda Tully is Director and Business Lawyer at JMA Legal. Jim Main is an Accredited specialist, Business Law, a Chartered Tax Adviser with the Tax Institute of Australia and Director, JMA Legal in Cootamundra, Gundagai, Tumut, Junee and Sydney.