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March 2020



The Victorian State Revenue Office (SRO) has announced that from 1 March 2020, the "practical approach" currently given to discretionary trusts with potential foreign beneficiaries will be withdrawn and no longer applied.

The "practical approach" meant that foreign purchaser additional duty was not charged where it could be shown that no foreign persons have benefitted from the trust and there is no intention that a foreign person would benefit from the trust.

The SRO will continue to apply the "practical approach" to dutiable transactions where contracts of sale are entered into before 1 March 2020.

However, from 1 March 2020, the SRO will now strictly apply the foreign purchaser additional duty  provisions to all discretionary trusts (including family discretionary trusts), so that if a discretionary trust has any potential foreign beneficiary, the trust will generally be treated as a foreign trust for duty purposes.

What is the potential exposure?

The consequence of being a foreign trust is that when the discretionary trust acquires an interest in residential property in Victoria, it will be subject to the foreign purchaser additional duty (currently an 8% surcharge) which is imposed on top of the standard duty rates (of 5.5% for property valued over $960,000).

These changes may impact some discretionary trusts in (the rather common) circumstances where someone, even in a very wide pool of general beneficiaries, is a foreign person, even if none of the named beneficiaries of the trust are foreign persons and the trustee had no intention to distribute trust property to any foreign beneficiary.

What steps can be taken to mitigate any exposure?

This surcharge may not apply if the trust deed contains a clause that specifically precludes the trustee from making distributions from the capital of the trust to foreign individuals, foreign corporations or trustees of foreign trusts that otherwise fall within the classes of eligible beneficiaries.

From 1 March 2020, if you are considering purchasing residential property in Victoria, to ensure that you are not liable for the foreign  purchaser additional duty, you may consider using a different purchase vehicle (that is not deemed to be a foreign trust), for example by establishing a new trust that specifically excludes foreign persons (explained further below).

Alternatively, where you do intend to purchase residential property in Victoria with an existing discretionary trust (and with no intention of making distributions to foreign persons), you should consider inserting an "exclusion clause" into the trust deed (if it does not have one already) that specifically excludes foreign persons from being potential beneficiaries of the trust.

Any amendment to a trust deed will have to be done prior to the dutiable transaction completing (in other words, prior to settlement).


Given the significant potential financial impact of the foreign purchaser additional duty (an additional 8% duty) being imposed, before making any Victorian residential property purchases or making changes to existing trust deeds, you should seek professional advice from your taxation and legal advisers.

Please do not hesitate to contact your Lowe Lippmann Relationship Partner if you wish to discuss any of these matters further..