Is your family trust purchasing residential property in Victoria?
From 1 March 2020 changes to Victoria’s Foreign Purchaser Additional Duty (FPAD) will have far reaching implications.
FPAD is an 8% duty payable in addition to stamp duty on all residential properties purchased by a foreign purchaser in Victoria. A foreign purchaser is a transferee who is a foreign natural person, a foreign corporation or a trustee of a foreign trust.
Previously a ‘practical approach’ was adopted when determining whether a trust should be deemed foreign. Under this approach, a trust was not considered ‘foreign’ if it was demonstrated that foreign beneficiaries have not and are unlikely to receive any future distributions.
However, from 1 March 2020, the Commissioner will no longer apply the practical approach, and discretionary trusts will instead be subject to ‘special rules’. The special rules dictate that if a discretionary trust has one or more potential foreign beneficiaries, it will be considered a foreign trust, irrespective of whether the foreign beneficiaries receive distributions resulting in FPAD when the trust acquires residential property.
With this change it is now more critical than before when purchasing residential property in Victoria to consider whether to:
• Set up a new discretionary trust which excludes foreign beneficiaries; or
• Amend the trust deed of any existing trusts to specifically exclude foreign beneficiaries.