It is time to review your trust deed?
Action required before 31 December 2020
With changes in rulings around foreign beneficiaries in discretionary trusts coming in to play as of 31 December 2020, we are now recommending a review of your trust deed to ensure it is up to date and reflects the operation of the trust.
Background
Trusts are governed by are widely used for investment and business purposes and are treated as taxpayer entities for the purposes of tax administration. All trusts are governed by deed which defines how the trust will operate. The trustee is responsible for managing the trust’s tax affairs, including registering the trust in the tax system, lodging trust tax returns and paying some tax liabilities.
Discretionary trusts are usually established for tax and asset protection reasons. Given that your trust may hold a significant proportion of your wealth, it is important that the deed is up to date from a tax, asset protection and succession planning perspective. The older the trust deed, the more likely there are to be issues.
Trust changes in NSW and Victoria
Recent changes in New South Wales and Victoria mean that it may be necessary to amend discretionary trust deeds to expressly exclude foreign beneficiaries regardless of whether foreign persons are intended to be potential beneficiaries or not. Otherwise, stamp duty and land tax surcharges may apply on residential properties held by the trust.
These changes have a retrospective effect. The stamp duty surcharge applies to relevant transactions from 21 June 2016 and the land tax surcharge applies from the 2017 and subsequent land tax years.
The good news is there is retrospective relief if the terms of the trust are amended BEFORE 31 December 2020.
Other factors to consider in regards to the construct of your trust deed include:
- any limitations that may impact business operations or investment in certain asset types
- succession planning and appointment of new appointers
- allocation of income and types of income to beneficiaries
If you’d like to discuss your trust deed and how we can help in regards to a review, please don’t hesitate to contact one of our friendly team here at Salisburys on 02 6041 3104.