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SRO change to FPAD

SRO change to FPAD

By State Taxes Committee, LIV Commercial Law Section



The foreign purchaser additional duty (FPAD) applies where a trust is a foreign trust. A foreign trust includes a discretionary trust that has any object that is a foreign person (a foreign individual, a foreign corporation, or another foreign trust).

The SRO have previously applied a ‘practical approach’ so that trusts that have foreign objects who have not and who are unlikely in the future to receive any distributions, will not be considered a foreign trust.

However, from 1 March 2020 the SRO will cease the ‘practical approach’ and apply a stricter black letter approach. The State Revenue Office notes that this change may cause the continued use of some discretionary trusts that do not include an express beneficiary exclusion clause for foreign natural persons, foreign corporations or trustees of foreign trusts to be a foreign trust.

This will mean that unless one specifically drafts new trust deeds or amends existing trust deeds to exclude foreign persons then it is automatically treated as foreign.

Simply drafting an exclusion to provide that no foreign person can be a beneficiary can be problematic e.g. where one family member ceases to be an Australian person they could be unintentionally excluded from any future distributions. If all beneficiaries cease to be an Australian resident or citizen, then the trust could fail for want of a beneficiary. This is particularly the case with NZ citizens who are treated as if they are Australian residents only whilst within Australia, and automatically become a foreign person when they cross outside Australian borders.

For further information please visit the SRO website.

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