Frequently asked legal questions
What is the definition of a 'foreign person'?
The criteria which makes a person or entity a 'Foreign person', is determined differently by the laws in each State and Territory. Generally, a person is a 'foreign person' if they are not an Australian citizen, or not the holder of a permanent Australian visa. An entity is a 'foreign person' if it is a foreign corporation or the trustee of a foreign trust.
The relevant definitions in each jurisdiction include the following:
- a 'foreign person' or 'foreign corporation' as each of those terms are defined in section 4 of the Foreign Acquisitions and Takeovers Act 1975 (Cth) but does not include any persons exempted under the Foreign Acquisitions and Takeovers Regulations 1989 (Cth) or Australia's Foreign Investment Policy 2015 (as amended from time to time) in relation to the buying of residential real estate;
- a 'foreign person' or a 'foreign trustee' as each of those terms are defined in the Duties Act 1997 (NSW);
- a 'foreign person' as that term is defined in the Land Tax Act 1956 (NSW);
- a 'foreign person' as that term is defined in the Duties Act 2001 (Qld);
- a 'foreign purchaser' as that terms is defined in the Duties Act 2000 (Vic);
- an 'absentee person' as that term is defined in the Land Tax Act 2005 (Vic); and
Also, the Cleardocs Trust Deed (excluding foreign persons) includes in the definition of 'foreign person':
- any other person who, by virtue of their interest or deemed interest in the trust together with their status or deemed status as a foreign person — in each case as determined under legislation similar in effect to the above in any jurisdiction in Australia — would expose the trustee (or the trust assets) to a surcharge rate of stamp duty or land tax or similar tax, charge or levy in respect of assets owned or to be owned as assets of the trust.
What is foreign purchaser duty surcharge and land tax surcharge (foreign person surcharges)?
Foreign purchaser duty surcharge is the additional rate of land transfer duty which must be paid by a person who is a 'foreign person' when they enter into a transaction to acquire (or concerning) land/property. The percentage of surcharge land transfer duty which is calculated on the dutiable value of the land/ property will vary between States and Territories.
Land tax surcharge is paid by 'Foreign Persons' who own residential land in a State or Territory of Australia and is calculated on the taxable value of all residential land owned at the end of each year. The land tax surcharge is added to the usual land tax rates ordinarily paid by landowners.
Can I exclude a foreign person from receiving trust distributions?
Yes, you can exclude 'foreign persons' from receiving distributions of income/capital from a trust by ensuring that the trust deed is carefully drafted in this way. The Cleardocs Deed of Variation (excluding foreign persons) can vary your existing trust deed in this way, but cannot assist you if a beneficiary specifically named in the trust deed is a 'foreign person'. You would need to obtain legal advice where this is the case.
What if a foreign person is already named as a beneficiary in my deed?
The Cleardocs Deed of Variation (excluding foreign persons) can vary your existing trust deed to exclude distributions of income/capital to 'foreign persons', but cannot assist you if a beneficiary specifically named in the trust deed is a 'foreign person'. You would need to obtain legal advice where this is the case.
Can I avoid foreign person surcharges simply by electing not to distribute to named beneficiaries in a given year?
No. Simply electing not to distribute to named beneficiaries in a given year will not assist if the relevant law assesses a trust according to whether a foreign person is merely named in the deed (or captured as a beneficiary).
What happens if a 'foreign person' is an appointor, trustee or director/shareholder of the trust?
This would mean that a 'foreign person' exercises control over the trust: whether as an appointor, trustee or director/shareholder of the trustee. Using the Cleardocs Deed of Variation (excluding foreign persons) product in order to vary who is an eligible beneficiary will not address these problems. You will need to obtain legal advice
When should vested entitlements in favour of a 'foreign person' beneficiary, if any, be paid?
You should also ensure that any vested entitlements in favour of a foreign person are paid by the trustee to that person before signing the Deed of Variation (excluding foreign persons): those entitlements could not be paid after the Deed of Variation is signed.
Should I apply for a ruling from the relevant revenue office in my state or territory, to seek confirmation that the trust is not a 'foreign trust'?
If you are unsure whether or not your trust is a 'Foreign Trust', you should consider applying for a ruling from the relevant revenue office in your state or territory, to seek confirmation that the trust is not a 'foreign trust'. If you do not obtain a ruling, it is possible that the revenue office may, or may at some time in the future, levy stamp duty and land tax at the higher surcharge rate that applies to 'foreign trusts'. Most revenue commissioners have a broad discretion when making these decision.
Can the clauses in the Deed be varied?
Once the Deed of Variation (excluding foreign persons) product is signed, the clauses which are included by the product cannot be varied in the future.
What are the tax benefits of this product?
By ensuring your trust does not allow the distribution of capital/income to a 'Foreign Person' (and provided that your trust is not otherwise controlled by a 'foreign person' and does not name a 'foreign person' as a beneficiary) then the relevant revenue authority is unlikely to levy stamp duty and land tax at the higher surcharge rate that applies to 'foreign trusts': as noted above, a ruling must be obtained for certainty on this point.