Trust deed foreign persons exclusion: a state-by-state guide
If your client’s discretionary trust holds or may acquire residential property in Australia, the trust deed almost certainly needs a foreign persons exclusion clause. Without one, the trust will be deemed a ‘foreign trust’ in most states, exposing it to surcharge stamp duty of up to 9% and surcharge land tax of up to 5%, on top of the standard rates. These surcharges apply regardless of whether any actual foreign person has ever received a distribution from the trust.
The problem is that most discretionary trust deeds define beneficiaries extremely broadly. A typical family trust deed includes class definitions encompassing ‘relatives’, ‘spouses’, ‘children of beneficiaries’, and often ‘any person or entity nominated by the appointor’. Because at least some of these theoretical beneficiaries could be foreign persons, even if none currently are, the state revenue office will deem the trust to be foreign under the surcharge provisions.
The surcharge rates differ by state. New South Wales charges 9% surcharge purchaser duty and 5% surcharge land tax on residential property held by foreign trusts. Victoria charges 8% surcharge duty and a 4% absentee owner surcharge (its surcharge land tax). Queensland charges 8% additional foreign acquirer duty and a 3% land tax foreign surcharge. South Australia charges 7% surcharge stamp duty. Western Australia charges 7% surcharge duty. Tasmania charges an 8% foreign investor duty surcharge and a 2% land tax surcharge. The ACT does not charge a foreign duty surcharge but levies a 0.75% foreign ownership land tax surcharge on residential land; the Northern Territory imposes no foreign surcharges.
The solution is a deed of variation that irrevocably excludes foreign persons from the class of beneficiaries who can receive distributions. However, this is not a one-size-fits-all exercise. Each state has different definitions of ‘foreign person’, different requirements for the exclusion clause, and different administrative guidance on what constitutes a valid exclusion.
New South Wales requires the exclusion to be irrevocable and has specific requirements under Commissioner’s Practice Note CPN004, version 2. The practice note states that it is not sufficient to merely prevent distributions to foreign persons, the trust deed must be incapable of being amended to allow a foreign person to become a beneficiary again. If named beneficiaries include foreign persons, a generic exclusion clause is insufficient and specific legal advice is required.
Victoria applies a strict substantial interest test. The trustee of a discretionary trust is deemed to be a foreign person if a foreign person has a substantial interest in the trust estate, which is defined by reference to the potential to benefit rather than actual distributions. Queensland, South Australia, and Western Australia each have their own definitions and thresholds that must be addressed separately.
In N & G Grima Family Trust Pty Ltd v Chief Commissioner of State Revenue [2025] NSWCATAD 149, the Tribunal held that a clause excluding foreign persons only while the trust held land failed the NSW no-amendment requirement that has applied since 2020. For NSW purposes, the exclusion must be absolute and irrevocable. Many trust deeds that were varied before this decision using template clauses may need to be revisited.
Another common pitfall is using a single nationwide template. Generic templates attempt to cover every state in one deed of variation, but the conflicting definitions and requirements between states mean that a clause drafted to satisfy NSW may not satisfy Victoria, and vice versa. The safest approach is a state-specific deed of variation prepared with reference to the legislation and administrative guidance applicable to the state in which the property is situated.
At CoSec Partners, every foreign persons exclusion is drafted and signed off by Key Legal, an independent external law firm, with reference to the specific state in which the property is situated. The deed is individually drafted, not templated. CoSec Partners is not a law firm and does not give legal advice. If your client holds property in multiple states, we prepare state-specific variations for each jurisdiction. Contact us for a quote.
Frequently asked questions
What did the Grima decision decide?
In N & G Grima Family Trust Pty Ltd v Chief Commissioner of State Revenue [2025] NSWCATAD 149, the NSW Civil and Administrative Tribunal held that a clause excluding foreign persons only while the trust held land failed the NSW no-amendment requirement that has applied since 2020. It did not change the law, and it is not binding outside NSW, but for NSW purposes the exclusion must be absolute and irrevocable, so deeds varied earlier using template clauses may need revisiting.
Can one deed of variation cover every state?
Not safely. Generic templates try to cover every state at once, but the conflicting definitions mean a clause drafted to satisfy New South Wales may not satisfy Victoria, and vice versa. The safer approach is a state-specific variation prepared for the state where the property is situated.
What if the trust has never distributed to a foreign person?
It is still caught in most states. The surcharge turns on who could potentially benefit under the deed, not on who actually has. Because typical family trust deeds define beneficiaries very broadly, the trust is deemed foreign unless the deed expressly and irrevocably excludes foreign persons.
This article is general information only and does not constitute legal, financial, or tax advice. While we endeavour to keep content accurate and current, laws and regulations change frequently. For advice specific to your circumstances, please consult a qualified professional adviser. CoSec Partners Pty Ltd accepts no liability for actions taken based on this content.