What is a Foreign Trust?

Foreign Trust with fixed beneficial interests

Where the beneficial interests of a trust are fixed, a trust will be a foreign trust where a beneficial interest of 50% or more of the capital of the trust property is held by one or more foreign persons.


Example 1

Sam, a foreign person, holds 50% of the units in a unit trust which gives them a beneficial interest of 50% of the capital of the trust’s property. The unit trust is therefore a foreign trust and is liable to pay a surcharge on an acquisition of an interest in residential land.


Example 2

Dale, a foreign person, is the sole member of a superannuation fund. As Dale has a beneficial interest of 50% or more of the capital of the trust property (100%), the superannuation fund is therefore a foreign trust and is liable to pay a surcharge on an acquisition of an interest in residential land.


Foreign Trusts that are discretionary trusts

A discretionary trust means an arrangement, however made, under which a person holds property, and the beneficial interest in all or any part of that property may be vested in a person (referred to as an object of the discretionary trust in the Stamp Duties Act 1923) on the exercise of a discretion, whether subject to any other contingency or not and whether the exercise of the discretion is obligatory or optional.

A discretionary trust will be a foreign trust where one or more of the following is a foreign person:

  • a trustee;
  • a person who has the power to appoint under the trust;
  • an identified object under the trust; and
  • a person who takes capital of the trust property in default.

Example 3

The deed of the A&A Trust, a discretionary trust, provides that Alex, a foreign person, is a trustee. His wife Andrea, a joint trustee of the trust, is not a foreign person.

As a foreign person, Alex, is a trustee of the discretionary trust, the discretionary trust is a foreign trust and the trust would be liable to pay a surcharge on an acquisition of an interest in residential land.


Examples of a 'power to appoint under the trust' include the power to appoint property, income, a new trustee and a person to be a beneficiary.


Example 4

The deed of the B&B Trust, a discretionary trust, expressly names Bettina, a foreign person, as a person who has a power under the trust to appoint the trustee. Her husband Bruce, who is also expressly named a person who has a power under the trust to appoint property of the trust, is not a foreign person.

As a foreign person, Bettina, has a power to appoint under the trust, the discretionary trust is a foreign trust and the trust would be liable to pay a surcharge on an acquisition of an interest in residential land.


A person who is an identified object under the trust must be identified in the trust deed by name. The term ‘identified as an object’ is not a blanket reference to a class or range of beneficiaries under a discretionary trust deed who are not identified by name.


Example 5

Courtney is expressly named as an identified object of a discretionary trust and is not a foreign person.

Her husband, Colin, is a foreign person, but is not expressly named as an identified object of the trust.

As Colin is not an identified object of trust, the trust is not a foreign trust.

This is the case even if the trust deed includes as objects a class or range of beneficiaries that Colin is a part of, for example, 'the spouse of Courtney'.


Example 6

The deed of the ABC Trust, a discretionary trust, expressly names Dom, a foreign person, is an identified object under the trust. His wife, Donna, a further expressly named identified object under the trust, is not a foreign person.

As a foreign person, Dom, is an identified object under the trust, the discretionary trust is a foreign trust and the trust would be liable to pay a surcharge on an acquisition of an interest in residential land.


Example 7

The deed of the ABC Trust, a discretionary trust, expressly names two persons (for example, a married or de facto couple) as identified objects under the trust, one being a foreign person and the other not being a foreign person.

As one of the identified objects under the trust is a foreign person, the discretionary trust is a foreign trust and the trust would be liable to pay a surcharge on an acquisition of an interest in residential land.

Similarly, a person who takes capital of the trust property in default must be identified in the trust deed by name. The term ’a person who takes capital of the trust property in default‘ does not extend to persons who are not identified by name in the trust deed but who may take capital of the trust property in default at a later time. Examples of taking capital of the trust property in default include taking capital of the trust property in default of appointment (i) at certain or regular times as may be required by a trust deed and (ii) prior to the ultimate vesting of the trust.


Example 8

The deed of the E&E Family Trust, a discretionary trust, expressly names Evan, a foreign person, as a person who takes capital of the trust property in default at certain or regular times as required by the trust deed. His wife Ella, a person expressly named who takes capital of the trust property in default of appointment prior to the ultimate vesting of the trust, is not a foreign person.

As a foreign person, Evan, is a person who takes capital of the trust property in default, the discretionary trust is a foreign trust and the trust would be liable to pay a surcharge on an acquisition of an interest in residential land.


Can you amend a discretionary trust deed to exclude as an object a person who is a foreign person without causing a resettlement of the trust?

A discretionary trust will only be a foreign trust for the purposes of the foreign ownership surcharge where one or more of the following is a foreign person:

  • a trustee;
  • a person who has the power to appoint under the trust;
  • an identified object under the trust; and
  • a person who takes capital of the trust property in default.

Providing none of the above are foreign persons, a discretionary trust will not be a foreign trust and the trust deed would not need to be amended.

In addition, with regards to an identified object under the trust, the object must be identified in the trust deed by name in order for a trust to be a foreign trust. The term ‘identified as an object’ is not a blanket reference to a class or range of beneficiaries under a discretionary trust deed who are not identified by name. Also, changing the trustee, a person who has the power to appoint under the trust or a person who takes capital of the trust property in default would not cause a dutiable resettlement of the trust.

Section 71(5)(g) provides an exemption from duty for discretionary trusts created wholly or principally for the benefit of a family group where a natural person object renounces or surrenders their interest in a discretionary trust and another member of the family group is to continue as an object.

With a Family Discretionary Trust, the specified beneficiary will be named and then include a range of a class of family members, e.g. children, grandchildren, etc., If any of these are foreign persons, is this a foreign trust?

If the identified or named beneficiary is a foreign person then the trust is considered a foreign trust and the foreign ownership surcharge will apply. If an unnamed person who is a foreign person is within a class of family members, this is not considered when determining if the foreign ownership surcharge applies.

Will any surcharge paid be refunded where a trust ceases to be a foreign trust?

A refund of a surcharge paid is available where a trust was a foreign trust at the time of the acquisition of an interest in residential land, but then ceases to be a foreign trust not more than 12 months after the interest in the residential land was acquired.


Example 9

A trust was a foreign trust as a result of an identified object of the trust, Jesse, being a foreign person. Jesse paid the surcharge on the acquisition of an interest in residential land as trustee for the foreign trust.

If within 12 months after the acquisition of the interest Jesse ceased to be a foreign person (for example, by becoming the holder of a permanent visa within the meaning of Section 30(1) of the Migration Act 1958 (Cwlth)), the trust would also cease to be a foreign trust.

On application, a refund of the surcharge paid is due.


What happens when a trust becomes a foreign trust within 3 years after the acquisition?

The surcharge will be retrospectively imposed where a trust becomes a foreign trust within 3 years of the acquisition of the interest in residential land. Where this occurs:

  • the Commissioner must be notified in writing that the trust became foreign within 28 days;
  • a surcharge is payable on the instrument or, in the case of an acquisition under Part 4, the transaction;
  • the surcharge is to be regarded as having become payable when the trust became a foreign trust; and
  • interest and penalty tax may apply as if the failure to pay the surcharge at the date of the acquisition were a tax default under the Taxation Administration Act 1996.

However, where a surcharge has been paid or is payable in respect of the transaction by virtue of which the trust became a foreign  trust, the surcharge is reduced by the amount of the surcharge paid in respect of the transaction by virtue of which the trust became a foreign trust.

The reduction is in essence a rebate that ensures that 2 surcharges are not payable as a result of a transaction.

If a non-foreign trust becomes a foreign trust within 3 years, is it their responsibility to advise RevenueSA?

If within 3 years of the acquisition of the interest in residential land the acquirer becomes a foreign trust, the Commissioner must be notified in writing within 28 days of becoming foreign.

The onus is on the acquirer to notify the Commissioner in writing within 28 days of becoming foreign.

When does the 3 year period for changing from non-foreign to foreign start?

The period starts from the date of acquisition of the property, that is, the settlement date.

Is the surcharge payable if the trust ceases to have the interest in the residential land prior to becoming a foreign trust?

A surcharge is not payable if the interest in the residential land was conveyed or transferred by the trust before the trust became a foreign trust.


Example 10

A unit trust acquired an interest in residential land on 1 January 2018.

On 30 May 2019, it sold its interest in residential land.

On 1 July 2019, a foreign person acquired 50% of the units. As such, the unit trust became a foreign trust.

However, no surcharge is payable as the interest in the residential land was conveyed or transferred by the unit trust before it became a foreign trust.


Is there an option to obtain RevenueSA’s opinion if a trust is defined as foreign like opinion stamping?

Yes. The foreign ownership surcharge can either be determined on RevenueSA Online or the instrument submitted for opinion assessment if required.

Contact Us