New South Wales case causes rethink on drafting of trust exclusion clauses
N & G Grima Family Trust Pty Ltd v Chief Commissioner of State Revenue [2025] NSWCATAD 149
The New South Wales Civil and Administrative Tribunal has handed down its decision in N & G Grima Family Trust Pty Ltd v Chief Commissioner of State Revenue [2025] NSWCATAD 149. (Link N & G Grima Family Trust Pty Ltd v Chief Commissioner of State Revenue - NSW Caselaw ).
This judgement before EA MacIntyre, Senior Member considered whether a family trust’s foreign person exclusion clause was sufficient to escape the New South Wales foreign surcharge land tax rates.
New South Wales Foreign Surcharges and Family Trusts
New South Wales imposes foreign surcharges of:
9% extra stamp duty on the purchase of residential property (on top of the existing 7% top stamp duty rate); and
5% extra annual land tax on holding residential property (on top of the existing 2% top land tax rate).
Australian citizens and persons ordinarily resident in Australia (typically a permanent resident or certain spouses who have been in Australia for 200 days within the past 12 months) are excluded.
Under specific rules in New South Wales, all family trusts will be considered foreign unless they have a foreign person exclusion clause that:
excludes all foreign persons for New South Wales stamp duty and land tax purposes from being able to receive a distribution of income or capital; and
where the must be irrevocable (ie the “no amendment” test).
If the clause is not in place before signing a contract to purchase residential land, the surcharge stamp duty is payable on purchase (ie duty is at rates up to 16% on the higher of the GST-inclusive purchase price or market value of the land and buildings).
Likewise, if the clause is not in place at 31 December each year – the surcharge land tax is payable by the family trust on all New South Wales residential land (ie land tax is at rates up to 7% of the residential land value).
The Grima Family Trust case
The trustee of the Grima Family Trust held land in New South Wales. After an investigation, the Chief Commissioner assessed the trustee to foreign surcharge land tax for the 2024. The taxpayer lost a subsequent objection and requested New South Wales Civil and Administrative Tribunal review.
The trust deed was subsequently amended to irrevocably exclude foreign beneficiaries, but the tribunal only considered the trust deed as it was in place at the land tax liability date of 31 December 2023.
The Trust Deed
At the relevant time, the trust deed provided in the definitions clause 1.1:
“Beneficiaries …… excludes all Excluded Persons.”
“Excluded Person means the following (even if any of them is named or would otherwise be or be included in a class of Beneficiary):
…
(e) any “Foreign Person”.
“Foreign Person means:
…
(l) any potential Beneficiary of this Trust who would or might cause this Trust to be or become a foreign person or a foreign trust for the purposes of any other statute,
and who, by being a Beneficiary, would or might cause this Trust to be assessed to additional or increased duty or land tax (in excess of any amount which the Trust would be required to pay had the person, corporation or trust not being so classified) in respect of the acquisition or holding of any direct or indirect interest in real property to which any of the provisions above apply, but only while:
(m) the foreign person, corporation or trust continues to be so classified under the relevant provision; and
(n) the Trust acquires or holds, any direct or indirect interest in real property to which any of the provisions above apply;”.
Excluded Persons were dealt with under clause 3 of the trust deed:
“3 EXCLUSION FROM BENEFITS
3.1 Excluded Persons
Every Excluded Person is specifically excluded from all or any benefits under this Trust. The Trustee must not:
(a) make any determination in favour of or any distribution of Income or capital in favour of any Excluded Person;
(b) pay, distribute, apply or Set Aside any Property of the Trust (including money) to or for the benefit of any Excluded Person.
3.2 Provision not Effective
Any provision of this Deed which does or might have the effect of conferring a benefit on any person contrary to clause 3.1 will be ineffective to confer that benefit and must be read down to the extent necessary to give effect to clause 3.1.
3.3 Irrevocable
This clause 3 is irrevocable and is not capable of being amended”.
Clause 3 was also expressly excluded from the amendment power in clause 19.1 of the trust deed.
Land Tax Position
The Chief Commissioner accepted that this clause was effective in excluded foreign beneficiaries.
However, the Chief Commissioner did not accept that it satisfied the “no amendment” requirement.
No amendment position
Firstly, the Chief Commissioner pointed out that only clause 3 was irrevocable. Clause 1.1 and the definition of “foreign persons” or “excluded persons” was capable of amendment and could therefore allow foreign beneficiaries to be included. The tribunal held, however, that the wording in clause 3.3 would prevent an amendment to the operation of clause 3.1 through amending clause 1.1.
The tribunal’s main concern was that clause 1.1 only defined a foreign person during the time when the trust “acquires or holds, any direct or indirect interest in real property”. It was these “temporal limits” that meant that a “foreign person” (who otherwise a beneficiary under the terms of the trust deed) would revert to being a beneficiary once real property was no longer held or acquired by the trustee of the Grima Family Trust.
This was held to be an alteration to the operation of clause 3 of the trust deed (at paragraph 54):
This alteration to cl 3 what does, occurs not by reason of an amendment to the provision pursuant to the power to amend given to the Applicant under cl 19. It is an alteration, nevertheless, resulting from a change in circumstances. It is a self- executing change.
The tribunal held that this change should not be treated any differently to a power to make a formal change in wording of the terms of a trust deed.
This was sufficient to mean that the “no amendment” requirement was not satisfied. On that basis, the terms of the trust deed did not adequately exclude foreign persons at 31 December 2023 and the New South Wales foreign owner land tax surcharge applied for the 2024 land tax year.
Other comments
The tribunal also noted at paragraph 57:
I observe in passing that the effect of cl 1.1 and cl 3 is that if the Applicant were, at a future date, to dispose of the real property held subject to the trust, the consequences would be twofold. First of all, any persons who were previously “foreign persons” will no longer be prevented from taking. Secondly, the proceeds of sale of the real property will form part of the fund from which they may now take, even though they previously could not take. The result would be to allow “foreign persons” to obtain a benefit from real property previously held within a trust, without having paid the higher rates of tax applicable to them. Such an outcome does not sit easily with the statutory purpose.
While not binding on a future tribunal, these sentiments may colour future decisions in this area.
Impact for New South Wales
The “temporal limit” wording used in the particular trust deed has been replicated in many other trust deeds.
Trusts with this wording are now at risk for:
Additional stamp duty surcharges on buying residential property in New South Wales;
Additional annual land tax on holding residential property in New South Wales.
These trusts should be amended to remove the temporal limitation clause prior to any further purchase of residential property and (for trusts with existing New South Wales residential land) prior to 31 December 2025 (ie before the 2026 land tax assessments).
Each amendment will need to be carefully considered under the existing amendment power in the trust deed including any restrictions on the use of the amendment power.
As New South Wales applies stamp duty on agreements to purchase land, the relevant trust deed should be amended prior to signing a contract for the purchase of land (although it may be possible to apply for a refund of surcharge duty if the trust deed is amended between signing the contract and settlement).
Comparison to Victoria
At present, Victoria does not require a foreign person exclusion clause to be irrevocable (ie the “no amendment” test does not apply).
However, it is best practice to carefully consider the terms of any trust exclusion clause before settling the purchase of residential property in Victoria – to confirm whether the clause is sufficiently drafted.
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Please contact us with any questions on State Tax issues.
Phil Broderick
Principal
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E pbroderick@sladen.com.au
Nicholas Clifton
Principal Lawyer
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