Common Issues with Trusts – Revenue NSW & Surcharge Land Tax

Of late we have seen a number of clients with land tax controversies with Revenue NSW. The most common issue we are currently seeing concerns discretionary trusts and surcharge land tax. For a discretionary trust that owns residential land in NSW to avoid the surcharge land tax, the terms of the trust must satisfy two requirements:

  1. That no potential beneficiary of the trust is a foreign person (the foreign beneficiary requirement); and
  2. That the terms of a 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).

It is absolutely critical that the terms of a trust deed, or a subsequent amending deed, satisfy these requirements unequivocally. For amending deeds, it is also important that these terms speak to the specific terms of your client’s trust. This is because no two trust templates are the same.

We have experienced multiple clients presenting to us with assessment notices from Revenue NSW where surcharge land tax has been imposed despite a foreign beneficiary exclusion amending deed having already been executed. In situations where this occurs, what we are seeing is that the taxpayer has purchased an off-the-shelf foreign beneficiary exclusion deed. These products, usually sold at an attractive price, are so cheap because they are generic and ambiguous in their terms and how they interact with the provisions of the original trust deed.

These low prices are viable because a lawyer has not taken the time to sit down and consider the terms of the original trust deed, and assess how a foreign beneficiary amendment should be drafted to meaningful engage with the terms of the original trust deed so as to satisfy both the foreign beneficiary and no amendment requirements.

It is in this ambiguity where chaos ensues. Whilst it may be reasonably arguable that the generic amending deed satisfies the two requirements so to avoid surcharge land tax, the broad and ambiguous terms of the amendment have left open an interpretation based on its plain reading that one – or both – of these criteria are not met.

After an adverse assessment has been made the taxpayer is left with an assessment notice significantly greater than it should otherwise be. From here the taxpayer is left with a decision to be made: to simply pay assessment notice (and then seek further amendment of the trust deed to ensure the two requirements are met), or object to the assessment. If an objection is not successful, the taxpayer is again left with a choice to pay the assessment or appeal the matter to NCAT or the NSW Supreme Court.

All of this expense – and stress – is the burden of the taxpayer who intended to comply with NSW’s land tax legislation, however purchased a product that does not satisfy their needs. They have fallen victim to the commoditisation of legal work.

At PGG Legal we are highly experienced in both preparing trust deed amendments of all kinds and dealing with state revenue offices. Based on fees alone we cannot compete with the big online legal template providers, however this is due to the fact that when we prepare an amendment deed, we take the time to assess the terms of the original trust deed, and draft an amending deed that is uniquely tailored to suit the trust. 

This time and care we take ensures that situations like these we are commonly now seeing be avoided, ultimately saving money and avoiding unnecessary stress for you and your clients.

We provide a broad range of trust documents and services. If you require any assistance with these, or have clients experiencing a land tax controversies, please get in contact with us.  

Joshua Briggs

Joshua has a Juris Doctor from Macquarie University and graduated from the College of Law in 2020. He works closely with Peter in trust law and taxation advisory. Joshua has completed a Bachelor of International Studies from the University of New South Wales.