Changes to foreign purchaser additional duty and discretionary trusts in Victoria

February 2, 2020

Foreign purchaser additional duty provisions were introduced with effect from 1 July 2015. As the foreign purchaser rules have now been in place for more than four years, the practical approach will no longer be applied from 1 March 2020, with transitional arrangements in place.

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 provisions.

Therefore, no matter you are an Australian tax resident or not, if you want to avoid the foreign purchaser additional duty, you need to take the following options:

  • using a different purchase entity.
  •  amending the trust deed so that there are appropriate restrictions on foreign persons as potential beneficiaries (e.g. include an express exclusion clause for foreigners). Importantly, any amendment will have to be done prior to the dutiable transaction completing (i.e. prior to settlement).