The Victorian State Revenue Office (SRO) had previously in practice adopted a practical approach in respect of family discretionary trusts: “………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.”
However, the SRO has just advised on its website that “………from 1 March 2020, the State Revenue Office will no longer apply the practical approach. Instead, the special rules for discretionary trusts will be applied to all discretionary trusts (including family discretionary trusts), so that if the discretionary trust has any potential foreign beneficiary, the trust will generally be a foreign trust for the purpose of the [foreign purchaser surcharge] provisions.” [Emphasis added]
The SRO is therefore about to take a more strict approach as to whether a discretionary trust in Victoria is a “foreign trust”.
It should be noted, however, there has not been any legislative change, and our deeds have always been prepared on the basis of the applicable legislation, rather than the SRO’s approach. We have since 2015, when so requested, established discretionary trusts using our discretionary trust deed that specifically excludes foreign beneficiaries, and we will of course continue to do this.
Also, the SRO’s more strict approach will be in relation to stamp duty on the purchase of residential property, rather than in relation to land tax. Therefore, if a discretionary trust deed is to be amended so as to exclude foreign beneficiaries, this only really needs to be done before the trust purchases residential property, i.e., before the contract of purchase is signed, rather than before the date of 1 March 2020 referred to above.
Having regard to the change in the SRO’s approach, we will going forward prepare deeds of variation to exclude foreign beneficiaries for trusts in Victoria, (rather than trustee resolutions as we had previously done for trusts in Victoria).
If so requested, (and provided that your discretionary trust deed had been established through InterDocs, we can prepare a deed of variation to exclude foreign beneficiaries for your trust, for our standard charge. This should be considered in particular if the trust is about to purchase residential property, having regard to the above.
While our view is that the trustee resolutions that we had previously prepared for trusts in Victoria are legally valid, they may possibly not be accepted by the SRO, and we will if so requested prepare a deed of variation to exclude foreign beneficiaries for a reduced price where we had previously prepared trustee resolutions for the trust.
If your discretionary trust was not established through InterDocs,
then we recommend that you contact the supplier of the discretionary
trust deed in relation to a deed of variation possibly being prepared
for that trust. Independent legal and tax advice should also be sought
in relation to your trust and trust deed as required.