From 1 March 2020, the Victorian State Revenue Office is moving away from their practical application of the Foreign Purchaser Additional Duty (FPAD) to a broader one.

This means that your clients will likely have to amend their Discretionary Trust deeds to ensure they become exempt from this surcharge.

What is the Foreign Person Additional Duty?

Introduced on 1 July 2015, the FPAD is a surcharge payable by, amongst other entities, Foreign Trusts that acquire residential property in Victoria. As from 1 July 2019, the FPAD is 8% of the dutiable value of the transaction.

Up until 1 March 2020, in determining if a discretionary trust was a Foreign Trust for the purposes of the FPAD, the Victorian State Revenue Office was applying a practical approach - so that trusts that had foreign beneficiaries, who had not and who were not, based on available information, likely in the future to receive any distributions, were not considered Foreign Trusts for the purposes of the FPAD.

However, from 1 March 2020, the Victorian SRO is taking a stricter approach to the application of this surcharge, and will determine that if a discretionary trust has any potential foreign beneficiaries, and no restriction on how much can be distributed to a particular beneficiary, it will generally be considered a Foreign Trust for the purpose of the FPAD.

This approach is in line with that taken by the NSW Office of State Revenue in its application of the Land Tax Surcharge and Surcharge Purchaser Duty that applies to discretionary trusts which have not expressly excluded foreign beneficiaries and who hold, or are acquiring, residential land in New South Wales.

It is also consistent with the Tasmanian State Revenue Office’s application of the Foreign Investor Duty Surcharge applied to discretionary trusts which have not expressly excluded foreign persons as beneficiaries that acquire residential or primary production property in Tasmania.

What does this mean for your clients?

If you have clients looking to acquire residential property in Victoria via their discretionary trusts and a contract of sale was entered into (or nominations were made in a sub-sale context) from 1 March 2020, their trust will be considered a Foreign Trust for the purposes of the FPAD and therefore may be liable for the foreign purchaser additional duty of an additional 8% - unless the trust deed specifically excludes foreign natural persons, foreign corporations and trustees of foreign trusts as beneficiaries of the Trust.

How can Topdocs help?

Topdocs provides a Foreign Person Exclusion Trust Variation package for discretionary trusts that excludes foreign persons and other relevant entities as beneficiaries of a discretionary trust for the purposes of the following surcharges:

• Victorian FPAD
• NSW Land Tax Surcharge
• NSW Surcharge Purchaser Duty
• Tasmania Foreign Investor Duty Surcharge

Please note this article is for information purposes only and does not constitute legal advice. Should you have any queries or require more information, please contact the team at Topdocs on 1300 659 242.

Download the Broader Application of the FPAD means deed updates needed article