Trust structures are widely used in Australia for holding assets, managing wealth, and facilitating estate planning. In New South Wales, however, discretionary trusts that hold residential property face a unique risk: unless the trust deed specifically excludes foreign beneficiaries, the trust may be deemed a “foreign trust.” That classification can trigger substantial foreign surcharges on stamp duty and land tax, even if no foreign person actually receives a benefit from the trust.
This issue has become a live compliance concern since the New South Wales Government tightened its surcharge rules and clarified that potential foreign beneficiaries are enough to attract the higher rates.
The source of the problem
The Duties Act 1997 (NSW) and the Land Tax Act 1956 (NSW) impose additional surcharges on “foreign persons” who acquire or hold residential land in New South Wales. For individuals, foreign status is relatively straightforward. For trusts, it depends on whether any potential beneficiary could be a foreign person.
Under these provisions, a discretionary trust is deemed a foreign trust if its terms allow a foreign person, even theoretically, to benefit. It doesn’t matter whether distributions have ever been made to that person or not. The mere possibility is enough.
This interpretation means that thousands of discretionary trust deeds created before 2020 may still expose trustees to significant tax surcharges.
What are the foreign surcharges on stamp duties and land tax for foreign trusts?
The surcharges are material and ongoing:
- Surcharge Purchaser Duty: an additional 9% on the value of residential property acquired by a foreign trust.
- Surcharge Land Tax: an additional 5% applied annually on the taxable value of residential land owned by a foreign trust.
These surcharges apply in addition to ordinary stamp duty and land tax liabilities. The financial impact over time can be considerable, particularly for trusts holding multiple properties or higher-value assets.
The required deed amendment
To avoid being treated as a foreign trust, a discretionary trust deed must include two specific provisions that are now standard under NSW law:
- No foreign beneficiary clause – the deed must explicitly exclude foreign persons from being beneficiaries of the trust.
- Irrevocability clause – the exclusion must be irrevocable, meaning the trustee cannot later amend the deed to allow foreign beneficiaries.
The Chief Commissioner of State Revenue requires both clauses to be present and enforceable before a trust is recognised as non-foreign.
If a trust deed does not contain these clauses, or if they are ambiguously worded, the trust will be treated as a foreign trust, and the surcharges will apply automatically.
Timing and retrospective impact
The Office of State Revenue (OSR) in NSW has made it clear: amendments must be completed before the relevant transaction or taxing date to be effective.In other words, updating a deed after acquiring residential property will not retrospectively remove surcharge liabilities.
Trustees who have not yet reviewed their deeds should act promptly. Even if a trust currently holds no residential property, adding these exclusions now ensures compliance in the event of a future purchase.
Practical steps for trustees
- Review the trust deed – confirm whether foreign beneficiaries are excluded.
- Engage a trust lawyer or accountant in NSW – amendments should be drafted and executed correctly to meet NSW legislative requirements.
- Lodge the amended deed – notify Revenue NSW to confirm non-foreign status where applicable.
- Maintain records – keep copies of amendments and correspondence for future property transactions or audits.
The broader lesson
Static legal documents can create dynamic tax consequences. A discretionary trust deed that was perfectly valid when drafted a decade ago can, under updated legislation, now impose avoidable financial liabilities.
Trustees and advisers in Tamworth and the larger NSW region should treat deed reviews as part of their regular compliance process, particularly when a trust holds property or plans to invest in real estate.
How PKF supports foreign trustees in NSW
As a full-service business advisory firm, PKF helps trustees manage the practical and tax implications of New South Wales’ foreign surcharge rules. Our team of advisers review discretionary trust deeds to identify exposure, coordinates with legal advisors to update documents, and ensures amendments meet the Chief Commissioner’s requirements.
We also assess the broader tax and structuring impacts, from stamp duty and land tax to long-term asset protection, ensuring changes integrate smoothly into your overall business and wealth strategy.
With accounting, tax, and business advisory expertise in Tamworth, Sydney, Newcastle, Walcha and Port Stephens, PKF provides a coordinated approach across the NSW region that keeps your trust structures compliant, efficient, and aligned with current legislation.
If your trust holds or intends to acquire residential property in NSW, now is the time to review your deed and ensure it meets the current legislative standard. Get in contact with our team to discuss how these rules may affect your trust structure.
