Discretionary Trusts & The Foreign Purchaser Additional Duty

Under the Duties Act 2000 (Vic) provisions have been in place for over five years which result in an increased rate of duty being payable for foreign purchasers of property in Victoria, the Foreign Purchaser Additional Duty (‘FPAD’). These provisions have always applied to the purchase of property in family or discretionary trusts, however from 1 March 2020, the State Revenue Office (‘the SRO’) has altered its approach to determining when that duty will be payable by a Trust.

Prior to 1 March 2020, the SRO applied a common sense approach to determining duties. If foreign beneficiaries had not historically received distributions from the trust, and based on available information they were unlikely to receive any future distributions, they would not be subject to the FPAD.

From 1 March 2020, this approach has changed. The SRO now applies the definition of a substantial foreign interest in a trust in the Duties Act strictly. Where there are any foreign capital beneficiaries of the trust the trust will be deemed a foreign trust and subject to the FPAD. This is even where those beneficiaries are not specifically named and are only members of a broader class of beneficiaries, including where they have never, and will likely never, receive a distribution from the trust.

It is therefore important to review the Trust Deed for any family discretionary trust which is to be, or may be, used to acquire property to ensure that any potential foreign beneficiaries are specifically excluded by the Deed. Properly amending the Deed, prior to any dutiable event (such as acquiring a property) will be effective for avoiding the FPAD, however there may be other unintended consequences such as resettlement of the Trust which will need to be considered on a case by case basis.

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