Introduction

Foreign investors in Victorian land are subject to complex State taxes, including foreign purchaser additional duty, absentee owner land tax surcharge and vacant residential land tax.

Similar foreign purchaser additional duty rules apply to New South Wales and Queensland and are proposed to apply to South Australian from 1 July 2018 and to Western Australia from 1 January 2019.

Similar absentee land tax surcharge rules apply to New South Wales and Queensland and are proposed to apply to Australian Capital Territory from 1 July 2018.

The legislative differences in the taxes between the jurisdictions makes managing property portfolios in multiple jurisdictions complex.

Between 1 July 2015 and 30 June 2016, an additional 3% and from 1 July 2016 an additional 7% foreign purchaser additional duty is levied where a foreign purchaser acquires an interest in residential property or in a landholder private unit trust or private company that owns residential property.

Between 1 July 2015 and 31 December 2016, an additional 0.5% and from 1 January 2017 an additional 1.5% absentee owner land tax surcharge is payable each calendar year by the absentee owner or deemed absentee owner of that Victorian land, unless exempt.

From 1 January 2018, 1% vacant residential land tax is payable each calendar year by the owners of residential land in specific inner city Councils which is not used and occupied for more than 6 continuous or aggregate months in the preceding year by the owner (or permitted occupant or individual tenant) as a principal place of residence (or during no more than 2 years construction or refurbishment) on the capital improved value of the land as at 31 December of the preceding year, unless exempt.

The foreign purchaser additional duty and absentee owner land tax surcharge applies to foreign individuals and foreign companies, but is extended to include certain Australian companies and Australian trusts associated with foreign individuals, foreign companies and foreign trusts.

It may be necessary to restructure Australian companies and Australian trusts and amend documentation or apply to the Commissioner of State Revenue (CSR) for a determination that the Australian companies and Australian trusts, are not subject to foreign purchaser additional duty or absentee owner land tax surcharge

Owners of residential land in specific inner city Councils will need to collate and retain records that establish use of the property as a principal place of residence so that vacant residential land tax is not payable.

Legislative references are to the Duties Act 2000 (Vic) (DAV 2000), the Land Tax Act 2005 (Vic) (LTAV 2005), the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA 1975) and the Migration Act 1958 (Cth) (MA 1958).

Introduction to Victorian Duty

Up to 5.5% transfer duty is levied on the dutiable value (i.e. the greater of consideration given or unencumbered value (sec. 20(1) DAV 2000)) of dutiable property (e.g. Victorian land (sec. 10 DAV 2000)) the subject of a dutiable transaction (e.g. transfer or declaration of trust (sec. 7 DAV 2000)), unless exempt.

Up to 5.5% landholder duty is levied on the unencumbered value (sec. 86 DAV 2000) of the relevant acquisition (e.g. transfer (sec. 77 & 78 DAV 2000)) of a significant interest (e.g. at least a 20% interest in a private unit trust or at least a 50% interest in a private company (sec. 79 DAV 2000)) in a landholder (e.g. private unit trust or private company) (sec. 71 DAV 2000) with at least $1,000,000 (sec. 71 & 72 DAV 2000) of Victorian land (sec. 73 DAV 2000), unless exempt.

Foreign purchaser additional duty will be a significant impost on foreigners directly or indirectly through companies and trusts acquiring Victorian residential land or land for residential development.

Introduction to Victorian Foreign Purchaser Additional Duty

From 1 July 2015, a foreign purchaser that acquires a land-related interest in residential property (or land on which a residence is intended to be affixed) or a significant interest in a landholder that owns residential property must pay foreign purchaser additional duty on the dutiable value of that residential property (sec. 28A and sec. 70(2) DAV 2000).

From 1 July 2015, a foreign purchaser that acquires a land-related interest that was not residential property and subsequently forms an intention to use, refurbish, develop or enable another to develop that land related interest as residential property, must within 30 days pay foreign purchaser additional duty (sec. 18A DAV 2000).

Advisors on the acquisition of residential property or interests in landholders with residential property will need to ensure the foreign purchaser additional duty is correctly calculated and remitted. In particular, when structuring acquisitions by Australian companies or Australian trusts, advisors should ensure that the documentation does not result in inadvertent liability for foreign purchaser additional duty.

Interestingly, the change of use provisions do not appear to apply to landholder duty, so this may encourage the acquisition of non-residential property which might be changed to a residential use in the future in a private unit trust or private company.

Between 1 July 2015 and 30 June 2016, the foreign purchaser additional duty rate was an additional 3%. On and from 1 July 2016, the foreign purchaser additional duty rate is an additional 7%.

Where contracts are signed before and settled after these specific dates, advisors will need to ensure that that foreign purchaser additional duty is calculated and remitted correctly under the transition rules.

Importantly, foreign purchaser additional duty applies to:

the acquisition of interest in Victorian residential property (but not commercial residential premises, residential care facility, supported residential service or retirement village) (sec. 3G DAV 2000);
the acquisition of shares in a landholder private company or units in a landholder private unit trust that owns interests in Victorian residential property;
non-residential property intended to be and capable of being refurbished or developed into residential property at the date of the dutiable transaction (sec. 3G DAV 2000);
the change of intention after the date of the dutiable transaction to use non-residential property as residential property (sec. 18A DAV 2000);
sub-sales executed on or after 1 July 2015 (sec. 32C, sec. 32J and sec. 32OA GAV 2000);
dutiable transactions otherwise subject to a concession (sec. 19A DAV 2000), such as the principal place of residence concession (sec. 57JA(2) DAV 2000), the off-the-plan concession (sec. 21(4B) DAV 2000) or the partition concession (sec. 27(2) DAV 2000); and
the dutiable value of the whole of mixed use property including the part that is not used for residential purposes (i.e. no apportionment applies).

From 1 July 2016, foreign purchaser additional duty does not apply to commercial residential premises, a residential care facility, a supported residential service or a retirement village (sec. 3G DAV 2000).

There is uncertainty whether student accommodation would constitute commercial residential premises (ECC Southbank P/L v FCT [2012] FCA 795; ATO Decision Impact Statement ECC Southbank P/L v FCT and GSTR 2012/6).

Foreign purchaser additional duty does not apply to exempt dutiable transactions (sec. 19A DAV 2000), such as a transfer in conformity with a Will (sec. 42 DAV 2000), a declaration or a transfer on relationship breakdown (sec. 38(2), sec. 43 or sec. 44 DAV 2000) or an in kind (in specie) trust distribution (sec. 34 to sec. 36B DAV 2000).

Failing to qualify for such exempt dutiable transactions may result in the impost of transfer duty and the additional foreign purchaser additional duty.

Foreign purchasers for Victorian Duty

Foreign purchaser additional duty applies to foreign individuals and foreign companies, but is extended to include certain Australian companies and Australian trusts associated with foreign individuals, foreign companies and foreign trusts.

A ‘foreign purchaser’ is (sec. 3 DAV 2000):

a ‘foreign natural person’ being a natural person that is not an Australian citizen, holder of a permanent resident visa (sec. 30(1) MA 1958) or a special category visa New Zealand citizen (subclass 444) (sec. 32(1) MA 1958);
a ‘foreign corporation’ being 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) directly or indirectly has more than 50% of the issued shares, legally, equitably or in practice controls or potentially controls more than 50% of the voting power (sec. 22 FATA 1975) (sec. 3A DAV 2000) or who the CSR has determined has a controlling interest (sec. 3C DAV 2000); or
a ‘trustee of a foreign trust’ being a trust in which a foreign natural person, a foreign corporation or a trustee of another foreign trust (alone or with associated persons) directly or indirectly has more than 50% of the beneficial interest in the capital of the trust (sec. 3B DAV 2000) or who the CSR has determined has a substantial interest (sec. 3D DAV 2000).

For companies and trusts it may be necessary to trace direct and indirect controlling interests or substantial interests through interposed entities and consider rights under the company Constitution or Trust Deed, Unitholders’ Deed, Shareholders’ Deed, special rights attached to units and shares or collateral documents such a financing agreements to determine if the company or trust is deemed to be foreign.

It may be necessary to restructure companies or unit trust ownership and amend those contractual rights so that the companies or trusts are not directly or indirectly controlled by foreigners so that foreign purchaser additional duty does not apply.

Foreign purchaser discretionary trusts for Victorian Duty

A discretionary trust that has any potential foreign beneficiaries entitled to capital distributions will be deemed to be a foreign trust subject to foreign purchaser additional tax on its residential property.

A discretionary trust will be deemed a foreign trust if (as is usual) a foreign natural person, foreign corporation or trustee of a foreign trust is a member of the class of beneficiaries (e.g. primary beneficiaries, general beneficiaries or default beneficiaries) entitled to receive a discretionary distribution of capital (sec. 3B(2) DAV 2000).

The trustee of a discretionary trust that owns or will own residential property should ensure that the trust deed excludes or is amended to exclude any foreign natural persons, foreign corporations or trustee of a foreign trusts so foreign purchaser additional duty does not apply.

It may be necessary to expressly exclude foreign natural persons, foreign corporations and trustees of foreign trusts as capital beneficiaries of a discretionary trust or apply to the CSR for a private ruling or determination that the discretionary trust which owns residential property is not deemed a foreign trust subject to foreign purchaser additional duty.

While it is necessary to exclude foreigners only from an entitlement to distributions of capital, this may be difficult where the trust deed re-characterises capital amounts as distributable income for trust law and income tax purposes (ATO Ruling TR 2012/D1).

The Treasurer (or CSR by delegation (Sec. 3F DAV 2000)) may determine that a person who would otherwise have a controlling interest in a corporation or a substantial interest in a trust does not have such a controlling interest or substantial interest having regard to the nature and degree of control, ownership, beneficial interest practical influence behaviour and any other relevant circumstances and the guidelines issued by the Treasurer (sec. 3E DAV 2000).

On 5 January 2018, the Treasurer published new foreign purchaser additional duty guidelines (Victorian Government Gazette S3 5 January 2018) replacing the guidelines issued on 11 August 2015 (Victorian Government Gazette G33 20 August 2015). The exercise of the discretion is limited:

The commercial activities of the corporation or trust must significantly add to the supply of housing stock in Victoria, either through new developments or through redevelopment, where such development is primarily residential. This includes purchasing existing property or properties for redevelopment, refurbishment or conversion for sale or re-sale where the primary use of the redeveloped, refurbished or converted property is for residential purposes.

Foreign purchasers that are not developers are unlikely to satisfy the requirements for exercise of the discretion so trust deed would have to exclude or be amended to exclude foreign natural persons, foreign corporations and trustees of foreign trusts at least as capital beneficiaries.

The CSR states that the CSR may consider a trust with potential foreign beneficiaries is not a foreign trust:

Family trusts are predominantly discretionary in nature. These trusts will often have a wide class of family members as general beneficiaries, which may include foreign persons who are not intended to benefit from the trust. As such, in interpreting trust deeds of this nature, the Commissioner will adopt a practical approach so that trusts that have foreign beneficiaries who have not and who are, based on available information, unlikely in the future to receive any distributions, will not be considered a foreign trust.

In adopting a practical approach, the Commissioner will consider the following factors:

Any intention (manifest or implied) of the settlor and/or trustee to vest any capital or income in the foreign person(s),
The relationship or connection between the foreign persons and the person(s) for whom the trust was established,
The likelihood of the foreign person(s) receiving or benefiting from any of the capital or income of the trust, having regard to any historical distributions of income and/or capital, and
Any other relevant information available to the Commissioner.

The CSR will consider a discretionary trust is not a foreign trust where the trust deed excludes or is amended to exclude foreign natural persons, foreign corporations and trustees of foreign trusts as capital beneficiaries, those excluded foreign beneficiaries cannot be nominated as beneficiaries and the trust deed cannot be amended to include or nominate those foreign beneficiaries.

It may be appropriate to apply for a private ruling from the CSR (GEN.009v2) to ensure that the discretionary trust is not a foreign trust subject to foreign purchaser additional duty.

Introduction to Victorian Land Tax

Up to 2.25% land tax is payable each calendar year (sec. 8 LTAV 2005) by the owner or deemed owner of Victorian land (sec. 10 LTAV 2005) on the aggregated taxable value of Victorian land as at 31 December of the preceding year (sec. 19 and sec. 35 LTAV 2005), unless exempt.

From 1 July 2006 an additional 0.375% trust land tax surcharge is levied on Victorian land owned or deemed owned by a trustee of a trust with landholding of $25,000 or more, phased out for landholdings exceeding $1,800,000 and reducing to nil for trusts with landholdings exceeding $3,000,000 unless exempt land, an exempt trust or the trustee nominates a beneficiary or unitholder to be the deemed owner for land tax liability (sec. 46A and 18 LTAV 2005).

From 1 January 2018, 1% vacant residential land tax is payable each calendar year (sec. 35(3) LTAV 2005) by the owners of residential land in specific inner city Councils (sec. 34A and sec. 34E LTAV 2005) which is not used and occupied for more than 6 continuous or aggregate months in the preceding year by the owner (or permitted occupant or individual tenant) as a principal place of residence (or during no more than 2 years construction or refurbishment) (sec. 34C(1) LTAV 2005) on the capital improved value of the land as at 31 December of the preceding year, unless exempt.

Introduction to Victorian Absentee Owner Land Tax Surcharge

From the calendar year commencing 1 January 2016, a trustee of an absentee trust is an absentee owner and liable for absentee trust land tax surcharge on the value of all taxable land (sec. 46IA LTAV 2005), unless:

the trustee of a discretionary trust has notified the Commissioner of the beneficiary in respect of pre-2006 land and if an absentee beneficiary will then be proportionately liable for the absentee trust land tax surcharge liability (sec. 46IE LTAV 2005); or
the trustee of a unit trust scheme has notified the Commissioner of the unitholding in respect of land and if an absentee beneficiary will then be proportionately liable for the absentee trust land tax surcharge liability (sec. 46IC LTAV 2005); or
the trustee of a discretionary trust or unit trust that owns land used by a beneficiary as a principal place of residence has notified the Commissioner of the beneficiary (sec. 46H LTAV 2005) and that beneficiary occupied the principal place of residence (sec. 46IF LTAV 2005).

Between 1 July 2015 and 31 December 2016, the absentee owner land tax surcharge rate was an additional 0.5% (i.e. for the 2016 calendar year). On and from 1 January 2017, the absentee owner land tax surcharge rate is an additional 1.5%.

An ‘absentee owner’ is (sec. 3 LTAV 2005):

a ‘natural person absentee’ being a natural person that is not an Australian citizen, holder of a permanent resident visa (sec. 30(1) MA 1958) or a special category visa New Zealand citizen (subclass 444) (sec. 32(1) MA 1958) and who does not ordinarily reside in Australia and who was absent from Australia on 31 December or absent for an aggregate period of at least 6 months in the preceding tax year;
an ‘absentee corporation’ being a corporation that is incorporated outside Australia, a corporation in which a natural person absentee, absentee corporation or trustee of an absentee trust (alone or with associated persons) directly or indirectly has more than 50% of the issued shares, legally, equitably or in practice controls or potentially controls more than 50% of the voting power (sec. 3A LTAV 2005) or who the CSR has determined has a controlling interest (sec. 3C LTAV 2005); or
a ‘trustee of an absentee trust’ being a trust in which a natural person absentee, an absentee corporation or a trustee of another absentee trust has a beneficial interest or unitholding in or is a specified beneficiary of the trust (sec. 3 LTAV 2005).

For companies it may be necessary to trace direct and indirect controlling interests through interposed entities and consider rights under the company Constitution, Shareholders’ Deed and special rights attached to the shares or collateral documents such as financing agreements to determine if the company is deemed to be an absentee corporation.

A fixed trust or unit trust will be an absentee trust if at least one beneficiary is a natural person absentee, absentee corporation or trustee of an absentee trust.

A discretionary trust will be an absentee trust if any member of the specified beneficiaries (as defined in the LTAV 2005) is a natural person absentee (i.e. a natural person that is not an Australian citizen, holder of a permanent visa or a special category visa New Zealand citizen) that may possibly receive a distribution of income or capital (sec. 3 LTAV 2005).

If one of the named beneficiaries is or becomes a natural person absentee (i.e. a foreigner), the Trust would be an absentee trust.

To avoid the application of the absentee trust land tax surcharge, land acquired under a contract dated on or after 1 January 2016 should be acquired by a special purpose discretionary trust that excludes all absentee beneficiaries (as defined in LTAV 2005).

For existing discretionary trusts, it may be necessary to amend the trust deed to exclude all absentee beneficiaries (as defined in LTAV 2005) prior to settlement or retrospectively so that at the time of acquisition (i.e. settlement) the discretionary trust is not an absentee trust. Whether the CSR will accept a retrospective amendment is unclear.

Since the concept of foreign persons and absentee persons are different, the exclusion of beneficiaries may be quite complex or have unintended consequences under the foreign purchaser additional duty and absentee trust land tax surcharge provisions

Advisors should ensure that distributions for income tax purposes are not inadvertently made to excluded beneficiaries because of the complex exclusions for foreign purchaser additional duty and absentee trust land tax surcharge purposes.

The Treasurer (or CSR by delegation (sec. 3C LTAV 2005)) may determine that a person who would otherwise have a controlling interest in a corporation or a substantial interest in a trust does not have such a controlling interest or substantial interest having regard to the nature and degree of control, ownership, beneficial interest practical influence behaviour and any other relevant circumstances and the guidelines issued by the Treasurer (sec. 3B or sec. 3BA LTAV 2005).

On 5 January 2018, the Treasurer published new absentee corporation and trustee of an absentee trust guidelines (Victorian Government Gazette S3 5 January 2018) replacing the guidelines issued on 11 August 2015 (Victorian Government Gazette G33 20 August 2015).

The CSR states that the CSR may consider a trust with potential absentee beneficiaries is not an absentee trust:

(b) Absentee trust

The nature and degree of the absentee beneficiary’s interest in the trust

The greater the degree of interest the absentee beneficiary has, or the absentee beneficiaries have, in the trust, the greater this factor will weigh against granting the exemption. For example, a fixed trust in which an absentee person has a beneficial interest of 100% will weigh more heavily against granting the exemption than a fixed trust in which an absentee person has a beneficial interest of 51% with the remaining 49% held by Australian citizens or residents.
In respect of a discretionary trust, it is not possible to quantify a beneficiary’s interest in the trust because a beneficiary does not have an entitlement to the income or property of the trust until the trustee exercises its discretion to distribute income or property to a particular beneficiary. When considering this factor in relation to an absentee trust that is a discretionary trust:

– The greater the frequency or proportion of distributions made to the absentee beneficiary, the greater this factor will weigh against granting the exemption.

– The closer the relationship between the specified absentee beneficiary and the trustee or the appointer of the trust, the greater this factor will weigh against granting the exemption. For example, where the trustee of the trust is a company in which the specified absentee beneficiary is the sole director and shareholder, the greater this factor will weigh against granting the exemption.

Practical influence that the absentee beneficiary can exert and the rights the absentee beneficiary can enforce to determine or influence, directly or indirectly, the outcome of decisions about the trustee’s administration and conduct of the trust

The greater the absentee beneficiary’s role in the management and operation of the trust’s activities, the greater this factor will weigh against granting the exemption.
The greater the absentee beneficiary’s level of practical influence over the outcome of decisions about the administration and conduct of the trust, the greater this factor will weigh against granting the exemption.
Practical influence includes a dormant practical influence, such as a veto power under the terms of the trust deed.

The practice or behaviour of the absentee beneficiary affecting the trustee’s administration and conduct of the trust

The greater the frequency and the impact of the absentee beneficiary’s involvement in the trustee’s administration and conduct of the trust, the greater this factor will weigh against granting the exemption.

An absentee trust is less likely to be granted an exemption if the management staff of the commercial operation carried on by the trustee of that trust in Australia are not based in Australia.

Introduction to Victorian vacant residential land tax

The specified inner city Councils are Banyule, Bayside, Boroondara, Darebin, Glen Eira, Hobsons Bay, Manningham, Maribyrnong, Melbourne, Monash, Moonee Valley, Moreland, Port Phillip, Stonnington, Whitehorse and Yarra.

Residential land is exempt from vacant residential land tax if the VSRO is satisfied that:

the land is used and occupied as a holiday home in the preceding year (sec. 88A LTAV 2005);
the land is used and occupied for the purposes of attending a place of business or employment for an aggregate period of at least 140 days in the preceding year (sec. 88B LTAV 2005);
the land was transferred in the preceding year (sec. 88C LTAV 2005); or
the land was not residential land in the preceding year but became residential land in the current year (sec. 88D LTAV 2005).

Most relevant is the exemption for a holiday home.

Residential land is exempt from vacant residential land tax if the VSRO is satisfied having regard to the location, distance to the owner’s principal place of residence and nature and frequency of use that in the preceding year the owner used an occupied another principal place of residence and used and occupied the residential land as a holiday home for at least 4 continuous or aggregate weeks (sec. 88A LTAV 2005). The owner is entitled to an exemption on one holiday home (sec. 88A(3) LTAV 2005).

The CSR states:

Holiday home exemption

The holiday home exemption applies to properties which are used and occupied by the owner as their holiday home (a second home) for at least four weeks in a calendar year.

In addition, the owner must have had a principal place of residence in Australia (not necessarily one that they own themselves, but one that they occupied as their home) in the relevant year.

The Commissioner of State Revenue must also be satisfied that the property was a genuine holiday home, having regard to its location and distance between the owner’s actual home and the holiday home, as well as the frequency and nature of its use.

An owner will only be able to claim one holiday home exemption in a calendar year.

When is a holiday home exempt?

The holiday home exemption applies to properties occupied by the owner for at least four weeks in the calendar year.

This exemption is subject to the following conditions:

The owner must have had a different principal place of residence in Australia in the calendar year.
The Commissioner of State Revenue must be satisfied that the property is a genuine holiday home.
An owner will only be able to claim the exemption for one holiday home in a calendar year.

What if family and friends use the property as a holiday home?

Family and friends can use the property but the holiday home exemption only applies to a property used and occupied by the owner as their holiday home for at least four weeks in a calendar year. If the owner themselves do not use the property as a holiday home, the exemption does not apply.

Before 15 January 2018 and each subsequent year (sec. 34H LTAV 2005), the landowner (or their nominated agent) must notify the VSRO via the online portal that the residential land is an exempt holiday home.

Records need to be kept to substantiate the use of the property. The type of records that should be prepared or kept are:

A contemporaneous use diary of the days spent in the property.
Copies of electricity and other utility accounts that will show utility usage.

Retrospective Variations

It may be necessary to amend the trust deed to exclude foreign persons or absentee beneficiaries (or both) so that the trust is not a foreign trust for foreign purchaser additional duty or absentee trust for absentee owner land tax surcharge.

The effective wording of the exclusion of beneficiaries is quite strategic so that changes in foreign status is accommodated without unintended consequences.

The exclusion of foreign beneficiaries and absent beneficiaries accepted by the CSR can be simply stated as (for example):

Each beneficiary that, if a beneficiary of this trust would result in this trust being a ‘foreign trust’ as defined in the Duties Act 2000 (Vic), is an excluded person and a nomination by the trustee of such beneficiary or amendment of this deed to include such beneficiary as a beneficiary of this trust will be invalid and of no effect.

Drafting by reference to the legislation permits an ambulatory interpretation. For example, in respect of foreign purchaser additional duty, the beneficiary is only excluded:

during such period that the beneficiary is a foreigner (e.g. does not have Australian permanent residency);
during such period that the trust own residential premises.

Where settlement has occurred, it is unclear whether the CSR will accept a retrospective amendment to the deed.

The CSR is obliged to assess duty on the basis of the transaction, unless the taxpayer is seeking to have the relevant transaction revised by some form of rectification (Prudhoe Corporation P/L v CSR (Vic) [2005] VCAT 1056 at [20]).

A variation may be retrospective if not prohibited by the terms of the Trust Deed (Gra-Ham Australia P/L v Perpetual Trustees WA Ltd (1989) 1 WAR 65 at 85; Global Custodian Ltd v Mesh [1999] NSWSC 624 at [67]).

An operative transaction is effective from the date agreed by the parties, but will only bind the CSR if rectified due to mutual mistake or the CSR accepts the effective date agreed by the parties (Davis v FCT [2000] FCA 44 at [55], [57] & [58]).

The retrospective amendment can defeat accrued but unsatisfied rights, but cannot take away (or call back) an interest in property that has already be created and vested (Global Custodian Ltd v Mesh [2002] NSWSC 47 at [122]; Fischer v Nemeske P/L [2015] NSWCA 6 at [134] - [136]).

While the CSR may not legally bound by a retrospective rectification or amendment, the CSR can accept to be administratively bound by the retrospective rectification or amendment.

Alternatively, the CSR may determine that a trust with potential foreign beneficiaries is not a foreign trust or potential absent beneficiaries is not an absentee trust under the discretion pursuant to the 5 January 2018 Guidelines.

Fetter on Trustee Discretion

The exclusion of the must be entrenched to ensure that the exclusion is not circumvented by amendment of the trust deed or nomination of the beneficiary to avoid beneficiary for foreign purchaser additional duty and absentee owner land tax surcharge.

A trustee cannot fetter the future exercise of powers vested in the trustee ex officio and any fetter is of no effect (Dagenmont P/L v Lugton [2007] QSC 272) although the trustee may be liable for damages for breach of contract (Fitzwood P/L v Unique Goal P/L (in liq) [2001] FCA 1628 at [121]).

An appropriately drafted power of amendment may entrench or permit a trustee to entrench a provision if structured as a release of an unfettered discretion (Dagenmont P/L v Lugton [2007] QSC 272 at [14], [25] & [34]).

Duty on Variations

A transfer of dutiable property is a dutiable transaction (Sec. 7(1)(a) DAV 2000). A ‘transfer’ may include a change of beneficial ownership (sec 7(4) DAV 2000) arising from a change of equitable interests in dutiable property or an assignment and an exchange (sec. 6(4) Duties Act (Tas) 2001).

Generally, a transfer requires a transaction between two parties (a transferor and transferee) so a transfer is not considered to arise from a unilateral variation of trust (Coles Myer Limited v CSR (Vic) [1998] VSC 288; see Ruling DUT 17 at [16] (NSWOSR) Variations to Trusts).

A declaration of trust over dutiable property is a dutiable transaction (sec. 7(1)(b)(1) DAV 2000). The ordinary concept of declaration of trust included a declaration by a trustee of land vested in the trustee on trust (CSR (Vic) v Lam & Kym P/L [2004] VSCA 204 at [29]) or the exercise of a power of appointment (CSR (Vic) v Lam & Kym P/L [2004] VSCA 204 at [41] and [45]).

A change of beneficial ownership over dutiable property is a dutiable transaction (Sec. 7(4) DAV 2000).

The CSR (NSW) considers (Ruling DUT 17 (NSW)):

16. The following variations to discretionary trusts are not dutiable transactions over dutiable property, and will not be liable to duty:

(a) a variation that adds a beneficiary to, or deletes a beneficiary from, the class of persons who are takers in default;

(b) a variation that adds a beneficiary to, or deletes a beneficiary from, the class of persons who are discretionary objects;

(c) a variation that varies the interests inter se of beneficiaries without altering the identity of beneficiaries; and

It is unclear whether the CSR (Vic) will adopt a consistent interpretation because the beneficiaries have a mere expectancy (Pearson v IRC [1981] AC 753).

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