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Discretionary Trust Deeds – It’s That Time Again!

The recent imposition of additional duty and land tax in some States has prompted advisors yet again to revisit their clients’ discretionary trust deeds – especially where the beneficiaries, or even potential beneficiaries, are foreign persons.

A quick summary of the new provisions:

  • Queensland has introduced Additional Foreign Acquirer Duty (AFAD) from 1 October 2016 on;
    • AFAD residential land, including homes and apartments,
    • vacant land on which a home or apartment will be built,
    • land for residential development,
    • and buildings refurbished, renovated or extended for residential use.
  • New South Wales has introduced a 4% surcharge purchaser duty where a foreign person acquires NSW residential land on or after 21 June 2016, and additional 0.75% surcharge land tax where a foreign person owns NSW residential land at 31 December each calendar year.
  • Victoria has increased the Foreign Purchaser Additional Duty from 3% to 7% for contracts signed on or after 1 July 2016.

While these provisions share a common policy objective, they are not uniform in their drafting or application, and each State has devised its own tests for working out to whom and what transactions the provisions will apply.

In Queensland, the test for AFAD with respect to acquiring trusts focuses on those with a trust interest. Under section 237(1) of the Duties Act 2001 (Qld), a trust is a foreign trust if at least 50% of the trust interests are foreign interests. A foreign interest is a trust interest of any of the following:

  • a foreign individual (being an individual other than an Australian citizen or permanent resident);
  • foreign corporation (incorporated outside Australia or in which foreign persons have a controlling interest);
  • foreign trustee; or
  • a trust interest held by a related person of any of those entities.

A trust interest is in turn defined in section 57 to include a person’s interest as a beneficiary of a trust, other than a life interest. For a discretionary trust, only a taker in default of an appointment by the trustee can have a trust interest.

In New South Wales, however, the test for working out who is a foreign person under for additional duty and land tax is generally linked back to the definition of foreign person under the Foreign Acquisitions and Takeovers Act 1975 (FATA).

Most relevantly for advisors in the SME space, a foreign person for these purposes is defined in section 4 of the FATA to include, among other things:

  • an individual not ordinarily resident in Australia (note this is a separate test and not the same as the test for a non-resident for income tax purposes);
  • a corporation or a trustee of a trust in which an individual not ordinarily resident in Australia, or a foreign corporation, holds a substantial interest (defined in section 4 as at least 20%); and
  • a corporation, or trustee of a trust, in which two or more persons, each of whom is an individual not ordinarily resident in Australia or a foreign corporation, holds an aggregate substantial interest (defined in section 4 as at least 40%).

For a beneficiary’s interest in a discretionary trust, section 18(3) provides each beneficiary is treated as holding the maximum percentage of income or property of the trust which the trustee may (not does) distribute to them. Where the trust is discretionary, each discretionary beneficiary could potentially receive the entirety of the income or property of the trust, and so is deemed to hold 100% of the beneficial interest in the trust – even where there isn’t a remote intention to make a distribution, of any size to that beneficiary.

Where a non-resident falls into a very, very wide class of beneficiaries under a discretionary trust, that can cause a myriad of problems. It not only means considering whether your client needs to seek FIRB approval prior to purchasing a property, but where the residential land is in New South Wales, it also means the purchaser trust is liable to that 4% surcharge purchaser duty and 0.75% surcharge land tax.

It can also mean liability to Australian foreign acquirer duty in Queensland, and a 7% foreign investor surcharge on residential stamp duty in Victoria. And all of this is just because of the traditionally wide drafting of discretionary trust deeds!

In our experience, one-size-fits-all clauses do not work for our clients, and won’t work for yours either. The state of the law requires advisors to ask more questions, and have more patience, than it ever has before.

If your clients are using a trust to acquire a residential property or are due for a review, come and talk to us. 


Jodie Mills

LLB MTax | CTA | Accredited Specialist -Tax Law

07 5552 6615
0431 526 077

Posted in: Family Law at 06 April 17


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Fixing A Rate Of Child Support By Agreement

Trading Certainty For Flexibility

Child support is a simple enough concept on its surface. The law compels parents to each contribute towards their children’s daily cost of living. The amount payable is calculated by a default formula, ensuring that there are basic rights and obligations for separated parents across the country. The concept of a child support agreement is also simple enough at first, there being mandated types of agreements that enable parents to create their own obligations to pay support and by doing so, replace the default formula with their own agreed entitlements and obligations. Parents can agree upon the amount to be paid, when payments are made, or the method of payment (lump sums, payment of school fees and so on). A child support agreement can be appealing to both parents, as it provides fixed and certain arrangements, unlike the default formula, which changes to reflect each parent’s circumstances over time.

Parenting, however, is a journey for parents and children alike. Kids grow older and circumstances change. Because of this, locking in long term child support obligations via an agreement needs to be thought through. What happens if things radically change down the track?

This was the case for Mr Cheyne in the recent Full Court case of Masters & Cheyne, where a binding Child Support agreement compelled the father to pay $240 per week to the mother. That agreement was struck when the parents’ son lived with the mother and spent 5 nights per fortnight with the father. Circumstances changed when the mother moved interstate. The child commenced living with the father, leaving him with an unwanted, ongoing obligation to pay the mother support pursuant to their agreement.

Despite seeking relief from the Court, the Full Court of the Family Court decided that Mr Cheyne remained liable to pay the mother – or more accurately, that there were no grounds to set the agreement aside. Let’s look at why.

Firstly, the 3 Judges who heard the case had different views as to when obligations pursuant to a child support agreement come to an end. One said that such an obligation could only end in the manner described in the legislation – which is one of 3 ways: i) per the terms of the agreement itself; ii) a further agreement; or iii) the Court setting the agreement aside where there is “exceptional circumstances” and “hardship”. Another Judge said that there was a fourth option, being when the default formula ends. This includes the death of parent, the child turning 18, or the child becoming a member of a couple. The third Judge said that this particular issue did not need to be decided.

Secondly, all members of the Full Court held that there was no evidence that the changed circumstances created hardship for Mr Cheyne, particularly when his superior financial position was considered. Passages of the judgment stress that binding agreements are necessarily difficult to set aside. There is no requirement for an agreement to provide for a “fair deal” or that the agreed obligations reflect the default formula in any way. Further, parents entering into binding agreements can be assumed to have elected for “certainty” over “flexibility”, such that a parent wishing to rely upon a later change of circumstances can expect firm resistance, if they have not explicitly made provision for their agreement to end in particular circumstances.

Mr Cheyne’s tale is one with lessons for all parents who receive or pay child support, or are considering a child support agreement. Where the vicissitudes of life itself make changes foreseeable – be it care arrangements; work and unemployment; salary; children’s expenses; or a parent’s financial position generally – a parent choosing to proceed with a binding agreement must carefully consider when they want an agreement to end – in effect, trading certainty for flexibility. As highlighted in Masters & Cheyne, the benefits of locking in an arrangement are accompanied by some potentially onerous obligations if circumstances change. Ideally, parents should obtain legal advice around their child support options and any proposed agreement, as one size does not fit all.

The second point to take from the case is that the law as to child support agreements is still developing. Specialist legal advice can assist parents keep up with the latest trends.

Craig Nicol

Craig is an Accredited Specialist in Family Law, a Partner at Small Myers Hughes Lawyers and Co-editor of ‘The Family Law Book’ - a publication for family lawyers across Australia. 

Posted in: Family Law at 23 March 17


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