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Important new tax changes that effect Wills creating Testamentary Trusts

The new State Revenue Legislation Further Amendment Bill 2019 (NSW) has introduced important tax changes that will effect Wills creating Testamentary Trusts for beneficiaries.

Once the Bill becomes law, the new legislation will impose annual foreign surcharge land tax (2% flat rate) on any residential land in NSW owned by a discretionary testamentary trust which was established more than 2 years after the Bill became law and that does not irrevocably exclude foreign persons as beneficiaries.

Importantly, this change will not effect existing testamentary trusts or those established within 2 years of the Bill becoming law where the deceased was not a foreign person, even where foreign persons are not irrevocably excluded from being beneficiaries.

As discretionary testamentary trusts are only established on the Will maker’s death however, it is impossible to know when the discretionary testamentary trusts will be established and as such, whether they will be effected by this change in legislation.

It is therefore important that if a Will maker of a Testamentary Trust Will may live another 2 years, they amend their Will to irrevocably exclude foreign persons from being beneficiaries of any discretionary testamentary trusts created by their Will. If they do not do this, all residential land in NSW inherited through the trusts will attract annual foreign surcharge land tax.

The surcharge applies without any threshold so even low-value land will attract the annual 2% tax.

Please contact Kristan Somerville of our office 02 6933 6900 for further information.