Trust deed amendments to exclude foreign persons: state-by-state requirements

Most pre-2017 discretionary trust deeds were drafted with broad beneficiary classes that did not contemplate the foreign person surcharge regimes that came into force progressively across the states from 2015. Where the trust holds residential land, the deed needs amending to exclude foreign persons. The amendment must satisfy the relevant state Act: a generic exclusion is not sufficient.

The starting point for any deed amendment is the variation power in the existing deed. Most discretionary trust deeds give the trustee or appointor the power to vary the deed within defined limits. The amendment is typically effected by a deed of variation signed under that power. The amendment must be irrevocable and binding on all future trustees.

For New South Wales, the deed must ensure that no potential beneficiary is a foreign person (as defined in section 104J of the Duties Act 1997) and that the deed cannot be amended to make a foreign person a beneficiary again (section 104JA Duties Act 1997 and section 5D Land Tax Act 1956, Commissioner’s Practice Note CPN 004). Named beneficiaries who are foreign persons generally need to be removed. The drafting must exclude foreign individuals (those without permanent resident status), foreign corporations, and foreign trusts. The exclusion must apply to capital and income distributions, to appointments of new beneficiaries, and to powers under the deed.

For Victoria, the amendment must reference the definitions in the Land Tax Act 2005 and the Duties Act 2000 (Vic). The Victorian definition of foreign person differs from the NSW definition: Victoria’s absentee individual test combines citizenship or permanent residency, ordinary residence and physical absence from Australia, so it does not line up with the New South Wales definition. A NSW-only amendment fails the Victorian test.

For Queensland, the relevant definitions are in sections 234 and 237 of the Duties Act 2001 (Qld). A trust is a foreign trust if at least 50% of the trust interests are foreign interests; for a discretionary trust, the Commissioner looks at the takers in default and the likelihood of distribution to a foreign person.

A trust that holds, or intends to hold, residential land in more than one state needs a deed amendment that covers all relevant state definitions. Drafting so the exclusion covers the widest of the relevant state definitions is the safest approach. The amendment should also exclude foreign trustees, foreign settlors, and foreign appointors where the relevant Act extends the foreign person definition to those roles.

Practical drafting points: the amendment must be irrevocable; it must apply to all classes of beneficiary in the deed; it must extend to charitable beneficiaries if the deed includes them; and it must be effective from a date before the next state revenue office assessment. CoSec Partners drafts foreign-persons exclusion amendments tailored to the specific states in which the trust holds property; contact us if you have an existing trust requiring amendment.