stamp duty

Additional stamp duty implication for discretionary trusts

10 November 2016

Foreign purchaser additional duty and absentee owner surcharge land tax may apply to Australian discretionary trusts transacting in Victorian residential land where the discretionary trust has potential foreign beneficiaries.

These rules may require Victorian residential land to be acquired in a special purpose discretionary trust, which expressly excludes foreign beneficiaries, so that additional taxes are not payable.

This is the first of two articles and addresses foreign purchaser additional duty. Absentee owner surcharge land tax will feature in the next edition of InSuccession.

Foreign purchaser additional duty


Up to 5.5% duty is levied on the dutiable value (eg greater of arm’s length consideration or unencumbered value) of dutiable property (eg land) the subject of a dutiable transaction (eg transfer or declaration of trust), unless exempt.

Up to 5.5% duty is also levied at ad valorem rates on the relevant acquisition (eg transfer) of a significant interest in a landholder (eg 20% in private unit trust or 50% in a private company) with $1,000,000 of Victorian land, unless exempt.

A foreign trust that acquires a Victorian residential property or shares in a private company or units in a unit trust that owns Victorian residential property (or land on which a residence is intended to be affixed) must pay foreign purchaser additional duty at the same time as paying the duty.

Foreign purchaser additional duty applies to contracts, transactions, agreements and arrangements entered into on or after 1 July 2015. The State Revenue Office has stated that a nomination signed on or after 1 July 2015 in respect of a contract signed before 1 July 2015 will not be subject to foreign purchaser additional duty unless a sub-sale.

A foreign trust that acquired Victorian land or shares in a private company or units in a unit trust that was not residential property and subsequently forms an intention to use, refurbish, develop or enable another to develop that land or land related interest as residential property, must within 14 days notify the State Revenue Office and must within 30 days pay foreign purchaser additional duty.

A change of intention will be evidenced when land development occurs such as preparing a plan of subdivision or taking steps to have it registered, applying for or obtaining a planning permit, applying for or obtaining a building permit or approval, doing anything on the land for which a building permit or approval would be required and developing or changing the land in any way which would increase its value. However, the intention to use, refurbish etc. for residential use may be evidenced earlier, such as when an application is made to a bank for finance.

Theoretically, a foreign trust purchaser might be able to delay the date foreign purchaser additional duty is payable by acquiring the land for other than residential use, refurbishment or development and changing intention.

From 1 July 2015 the foreign purchaser additional duty rate was 3%. From 1 July 2016, the rate is 7%.

Will your trust be considered a foreign trust?

A foreign trust is a trust in which a foreign natural person, a foreign corporation or a trustee of another foreign trust has a substantial interest in the capital of the trust estate.

A foreign natural person is a natural person that is not an Australian citizen, not a holder of a permanent visa or not a special category visa New Zealand citizen.

A foreign corporation is a corporation that is incorporated outside Australia, a corporation in which a foreign natural person, foreign corporation or trustee of a foreign trust (alone or with associated persons) has more than 50% controlling interest over member interests, voting power or potential voting power.

Since a beneficiary of a discretionary trust has a mere expectancy but no interest in the trust assets, each beneficiary that may be distributed capital is taken to have a beneficial interest in the capital of the trust equal to the maximum amount the trustee is empowered to distribute to that beneficiary.

For a modern discretionary trusts where the trustee has a discretion to distribute capital to any beneficiary, in any proportion to the exclusion of other beneficiaries, each primary beneficiary, each general beneficiary and each default beneficiary will usually be taken to have a beneficial interest to 100% of the trust capital.

Accordingly, most modern discretionary trusts will be foreign trusts because potentially one beneficiary (eg a distant relative) is a foreign natural person, foreign corporation or trustee of a foreign trust, unless such persons are expressly excluded beneficiaries in respect of capital distributions under the trust deed and the trust deed (in relation to the exclusion) cannot be amended or the trustee cannot nominate such persons as a beneficiary entitled to receive capital.

Residential property

Residential property is:

  1. land capable of being lawfully used solely or primarily for residential purposes
  2. land which includes a building that is intended to be refurbished or extended so capable of being lawfully used solely or primarily for residential purposes
  3. land on which a person intends to construct, undertake land development to construct or enable another person to construct, a building so the land is capable of being lawfully used solely or primarily for residential purposes

From 1 July 2016, residential property does not include such land capable of being used or intended to be used solely or primarily as commercial residential premises, a residential care facility, a supported residential service or a retirement village. There is uncertainty whether student accommodation would constitute commercial residential premises for duty purposes.

In determining if mixed use land is used primarily for residential purposes, the zoning, the relative area used for residential purposes, the intensity of the residential use, the relative level of investment and the relative financial return for residential purposes would be relevant.

Concessions and exemptions

Although a foreign trust may be entitled to concessional duty on the transfer (eg off-the plan concession) the foreign trust is not entitled to a concession from the foreign purchaser additional duty.

A foreign trust purchaser is entitled to an exemption from foreign purchaser additional duty if the transfer would be exempt for standard duty such us under change in trustee and transfer to and from a trustee or nominee.


Before purchasing a Victorian residential property in a discretionary trust it is important to consider the terms of the trust deed including the class of beneficiaries entitled to capital and the intentions of the trustee. If you do not want additional duty imposed on the purchase, then Victorian residential land should be acquired in a special purpose discretionary trust, which expressly excludes foreign beneficiaries.

This article originally appeared in the Spring 2016 edition of InSuccession. Other articles in this newsletter included:

Disclaimer: This publication contains comments of a general nature only and is provided as an information service. It is not intended to be relied upon as, nor is it a substitute for specific professional advice. No responsibility can be accepted by Rigby Cooke Lawyers or the authors for loss occasioned to any person doing anything as a result of any material in this publication.

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