Victoria — SRO stamp duty changes

Important changes for discretionary trusts.

Victoria — SRO changes approach on foreign trusts

From 1 March 2020 the Victorian State Revenue Office (SRO) will no longer apply what it refers to as the ‘practical approach’ for dealing with discretionary trusts that may have been caught out by the foreign purchaser additional duty (‘FPAD’) provisions.

The SRO will return to a strict application of the law for the purposes of determining when a trust will be a foreign trust for the purposes of the Duties Act 2000 (Vic). If a trust deed allows for discretion to distribute all of the trust’s income or capital to a foreign person, then the trust will be deemed to be a foreign trust for FPAD purposes.

The current FPAD rate is 8% in Victoria which applies in addition to the usual rate of duty of 5.5%, meaning overlooking these provisions can result in substantial additional duty being incurred if the trust is a foreign trust. Considering the median house price is $810,000 that could cost you an extra $64,800 in stamp duty!

If you are considering setting up a discretionary trust you should seek advice as to the application of these laws. To avoid FPAD you will need to exclude foreign persons from benefiting under the trust deed and specific trust provisions are required.

As there are legal risks and difficulties in varying an established trust deed it is preferable that any required exclusions are included from the commencement of any trust. For established trusts a variation can be made to vary the terms of the trust to exclude foreign persons.

However, any change to the beneficial interests of a trust carries a risk of resettlement of the trust and care should be taken in this regard (this  can trigger unrealised capital gains on assets held in the established trust).

If you have an existing trust looking to purchase property you need to determine whether there is any need to vary the existing deed as it may include foreign beneficiaries. The legislation is very broad in covering many typical family trusts unless an appropriate exclusion is made for foreign persons.

Please feel free to contact our office for further advice.


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