Family Trust Update – Exclude Foreigners

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Family trusts that own land suffer additional stamp duty and land tax. This is because states believe all Family Trusts have foreigners.

Build this Deed of Variation to exclude foreigners to stop penalty taxes.

Foreign person surcharges are additional taxes. They are levied on top of the usual stamp duty and land tax. These surcharges are extra costs you pay over and above the normal stamp duty and land tax.

Deed of Variation to exclude foreign persons

Build the Deed of Variation to update your discretionary trust. This deed prevents foreign beneficiaries from receiving trust income and capital. Thus avoiding penalty taxes. Changes are final and irreversible.

Why exclude Foreign Persons from your Family Trust?

State governments impose tax surcharges when the Family Trust holds residential land in that state. Family Trusts have ‘foreign’ beneficiaries because the class of beneficiaries is so widely defined in a modern Family Trust. Most Family Trusts have over 400,000 beneficiaries.

What is a ‘foreign person’?

What makes a person ‘foreign’? Each state answers that differently.

Generally, a human is a ‘foreign person’ if they are not:

• • an Australian citizen; or
  • the holder of a permanent Australian visa.

An entity (non-human) is a ‘foreign person’ if it (does not ordinarily reside in Australia):

• • is a foreign corporation (company) or
  • the trustee of a foreign trust.

While not a legal definition and has no force of law, NSW Revenue helpfully explains:

‘You are generally considered a foreign person, unless:

• you are an Australian citizen, or you have lived in Australia for 200 days or more in the 12 months prior to the taxing date of 31 December, and
• you are a permanent resident of Australia.’

Definitions of ‘Foreign Person’ in Australian Legislation

• New South Wales:

  • “Foreign person” as defined by the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FAT Act), as modified by section 104J of the Duties Act 1997 (NSW). (Revenue Ruling G9 explains the definition.) Status as a ‘foreign person’ is determined when a liability for duty or land tax would arise.
  • ‘Foreign person’ or ‘foreign trustee’ as defined in the Duties Act 1997 (NSW).
  • ‘Foreign person’ as defined in the Land Tax Act 1956 (NSW).

• Victoria:

  • ‘Foreign natural person’, ‘foreign corporation’, or ‘foreign trust’ as defined in the Duties Act 2000 (Vic).
  • ‘Absentee person’ as defined in the Land Tax Act 2005 (Vic).

• Queensland:

  • ‘Foreign person’ as defined in the Duties Act 2001 (Qld).
  • An individual who is not an ‘Australian citizen’ or ‘permanent resident’, a ‘foreign company’ or the trustee of a ‘foreign trust’ as defined in the Land Tax Act 2010 (Qld).

• South Australia:

  • ‘Foreign person’ as defined in the Stamp Duties Act 1923 (SA).

• Western Australia:

  • ‘Foreign person’ as defined in the Duties Act 2008 (WA).

• Tasmania:

  • ‘Foreign person’ as defined in the Duties Act 2001 (Tas).

• Australian Capital Territory:

  • ‘Foreign person’ as defined in the Land Tax Act 2004 (ACT).

• Northern Territory

  • The Northern Territory has no ‘foreigner’ penalty tax or land tax. Well done, NT.

These are extra taxes on top of the normal stamp duty and land tax that you normally pay.

Does the removal of foreigners cause a resettlement?

A ‘resettlement’ occurs when changes to the trust are so fundamental that it effectively becomes a new trust. As a result, the tax regulator considers this a ‘transfer’ of all the trust’s assets to a new trust. Such a transfer incurs state stamp duty and triggers Commonwealth Capital Gains Tax.

When changing beneficiaries in a trust, there is a risk of resettlement. However, Legal Consolidated’s Deed of Variation to Exclude Foreigners does not seek to remove beneficiaries. It seeks to stop the Trustee and the Family Trust from being able to distribute to a beneficiary. This is now and forever into the future.

1. My Family Trust is new; it has no assets in it

Any resettlement typically has no taxation impact for Family Trusts with no assets. This is because stamp duty on nothing and capital gains on nothing are also nothing.

Therefore, it supports our argument that you should establish a new family trust whenever you want to buy real estate.

2. My Family Trust has assets in it

If you already have assets in your Family Trust, presenting the state tax regulator with the unsigned copy of the Deed to Remove Foreigners is even more important. This is for their approval. However, even then, they may approve the Deed to exclude foreigners but not address their mind to the question of resettlement. Years later, the same regulator may argue that the Deed of variation triggered a resettlement. Consider returning to the regulator again, seeking a second ruling that there has been no resettlement.

Capital Gains Tax is a federal tax. States do not control it. Therefore, consider applying for a private ruling from the Australian Tax Office to confirm there is no resettlement for any Commonwealth taxes. Your accountant should do this for you. Your accountant is your friend. Regulators like state and federal tax revenue officers are not your friends.

Does ‘holding’ land include ‘buying’?

The legislation indicates that it does not matter how the trust acquires, controls, or owns the real estate. This includes purchases, transfers, agreements for sale, declarations of trust, surrender, options, (probably) put options, call options, put and call options, and options to purchase.

However, such states may offer refunds/exemptions on new home developments by Australian developer companies that are foreign persons

There are no foreigners in my Family Trust. I am a proud third-generation Australian!

Family trust beneficiaries are not limited to persons expressly named as Trustees or Appointors, including you and your children. Beneficiaries extend to the members of any class of persons who can potentially benefit from the family trust.

The family trust’s trustee (acting under the direction of the Appointor) can distribute to literally 1,000s of people.

Beneficiaries include broad classes of individuals, organisations, and companies. It is not only just named persons. The Legal Consolidated Deed of Variation allows for changes in your circumstances. For example, after you sign the family trust, you get married, have children, divorce, and die.

These ‘new’ beneficiaries may be foreign persons.

Some of the 1,000s of these beneficiaries may qualify as foreign persons. For instance, most Australian Family Trusts include all religions, universities, and charities as beneficiaries.

Therefore, every Family Trust has foreigners as beneficiaries.

A single foreign beneficiary is enough for most states to make the entire discretionary trust foreign.

Why Use a Separate Deed to Exclude Foreigners?

Keeping the main family trust deed separate from the Deed of Variation to exclude foreign beneficiaries is essential. It ensures legal clarity, minimises risks, and maintains the flexibility of your trust.

1. Protecting the Original Trust Deed

The Exclude Foreigner Deed should be kept separate from the Family Trust Deed and other Deeds of Variation.

The main trust deed is the foundation of your family trust. A separate Deed of Variation preserves its integrity, avoiding errors or unintended consequences from direct amendments.

2. Managing Irreversible Changes

Excluding foreign beneficiaries is an irreversible action. If circumstances change — for example, a family member gains or loses foreign status — it is easier to address these changes without rewriting the original deed. A separate document allows for targeted amendments without risking the validity or effectiveness of the family trust.

3. Ensuring Legal Compliance

Each Australian state and territory has unique laws for excluding foreign beneficiaries. Maintaining a separate deed helps with compliance with these jurisdictional requirements without unnecessary changes to the core trust. This is especially critical for trusts holding property across multiple states. (Legal Consolidated does not recommend a Family Trust hold more than one property. It should never hold properties across state borders.)

4. Reducing Legal Risks

Separate documentation avoids ambiguity and reduces the risk of disputes, as seen in cases like Oswal v FCT [2014] FCA 812. It ensures the trust’s validity and compliance.  

5. Simplifying Administration

Future updates to the trust are easier when the exclusion of foreign beneficiaries is isolated in a separate Deed of Variation.

A separate Deed of Variation protects your trust’s integrity, reduces risks, and ensures compliance.

Multiple Properties in a Family Trust do not work for the Foreign Ownership Rules

Owning multiple properties in a single Family Trust creates problems with the foreign ownership rules. State laws constantly change, and some property owners have executed over 16 Deeds of Variation to remove foreign beneficiaries from their Family Trust.

Each Exclude Foreign Beneficiaries Deed modifies the same Discretionary Trust. These Deeds irrevocably exclude any ‘foreign person’ from benefiting under the Family Trust. 

When multiple amendments, such as Deeds of Variation, are made to a single Family Trust, the risk of conflict between these amendments increases. Each amendment alters the terms of the Trust, and over time, the cumulative changes may contradict or undermine one another.

For example, one amendment may irrevocably exclude foreign beneficiaries, while another might introduce terms that unintentionally allow a class of beneficiaries with indirect foreign ties. Inconsistent definitions, overlapping terms, or conflicting priorities in the amendments can lead to legal disputes, administrative confusion, or even make the Trust unenforceable in certain aspects.

These conflicts complicate the Trust’s operation, jeopardise compliance with state laws, and expose the property owner to penalties and legal challenges. Therefore, relying on a single Family Trust to hold multiple properties is risky and inefficient compared to establishing separate Trusts for each property.

Best Practice for Property Ownership is a separate Family Trust for each property

Best practice is to create a separate Family Trust for each property purchase. For example, an owner with seven properties must set up seven distinct and unrelated Family Trusts, one for each property. This structure avoids complications and minimises risk under foreign ownership laws.

Why not make every Family Trust free of foreigners?

Reducing your class of beneficiaries reduces the value of the Family Trust. A Family Trust should have the widest group of beneficiaries possible. Removing foreigners from the class of beneficiaries damages the Family Trust. It makes it less valuable.

Therefore, only fetter your Family Trust to remove foreigners when necessary. And then, do not use that ‘damaged’ Family Trust for any other purpose. Build a second family trust if you want to buy a second piece of land in the same state. And then build a third Family Trust if you want to buy land in another state.

Build a fourth family trust on Legal Consolidated’s website to hold cash and buy shares — and ensure this Family Trust remains undamaged. There is no need to restrict foreigners in this fourth family trust because it does not own real estate.

The Deed to remove foreigners is irrevocable, and the damage is permanent. This certainty prevents state revenue officers from inflicting the penalty stamp duty and land tax imposts. But if you or your family ever live outside of Australia, you stop being beneficiaries of your own trust. What if all your bloodline ends up living overseas?

Farms are exempt from the foreigner tax in NSW

In NSW, residential land includes:

1. parcels of land on which one or more dwellings are situated;
2. strata lots;
3. utility lots, and
4. parcels of vacant land that are zoned for residential purposes.

NSW land used for primary production is excluded from this additional surcharge. (See section 10AA.)

However, Tasmania imposes foreigner surcharges on farms

As you can see, every state is different. For example, unlike NSW, Tasmania imposes a foreign surcharge duty on acquisitions of primary production land.

Victoria and Queensland define land wider for the family trust foreigner surcharge taxes

Victoria and Queensland apply a wider definition of land. (However, in Victoria and Queensland, an exemption may be available for organisations significantly contributing to their state economy.)

Western Australia has its unique definition of land for the land tax and stamp duty foreign taxes in family trusts

Residential property is defined in section 205E of the Duties Act to mean:
(a) land in Western Australia that is capable of being, or is intended to be, used solely or dominantly for residential purposes
(b) vacant or substantially vacant land in Western Australia that is zoned solely for residential purposes or
(c) any estate or interest in land as described in (a) or (b).

However, these definitions are changing and being reinterpreted constantly. Do not rely on the above. It is general information only. Legal Consolidated is giving no legal advice on these issues. We do not review your document or advise on whether your family trust owns land within these foreigner surcharge taxes.

Where relevant, why does Legal Consolidated not state that ‘commercial’ property is exempt?

We do not know what ‘residential’ and ‘commercial’ mean for the particular property that your Family Trust is about to buy.

You are right. ‘Commercial’ property is not meant to be caught in this web of conflicting laws in some states. But what you think is ‘commercial’ may, at a stretch, end up being ‘residential’ as well. For instance, a property primarily used for business could have a residential component, such as apartments above shops. Additionally, some mixed-use properties, despite their commercial activities, might be classified as residential for tax purposes depending on state laws and the specific usage proportions.

Whereas the Victorian Revenue Office states:

‘Residential property does not include commercial residential premises, a residential care facility, a supported residential service or a retirement village and which may lawfully be used in that way.’

In some states, such as Queensland, the land tax applies to all properties (including residential and commercial); however, stamp duty is arguable only on residential property in Queensland.

Legal Consolidated is not providing advice on this. You need to speak with your lawyer and accountant about your specific circumstances. We do not consider or look at the assets of your family trust. We do not consider what your family trust may acquire through real estate. Seek your own legal and accounting advice on such matters.

An example where it is difficult to tell if the land is farmland or commercial

In Wylarah Pastoral Co Pty Ltd ATF Tallong Family Trust v Chief Commissioner of State Revenue [2024] NSWCATAD 366, the New South Wales Civil and Administrative Tribunal (NCAT) examined whether a 9.3-hectare property qualified for a land tax exemption. This is under section 10AA of the Land Tax Management Act 1956 (NSW). The taxpayer claimed the land was used primarily for maintaining cattle, seeking exemption as primary production land.

The Tribunal acknowledged that activities such as pasture improvement, fencing, road enhancements, fertiliser application, and installing water systems constituted “use” of the land under section 10AA(3). However, it determined these were preparatory works, not the land’s dominant use. The property was concurrently used as a rental residence, and the Tribunal found that this residential use outweighed the preparatory agricultural activities. Consequently, the land did not meet the criteria for exemption as primary production land.

This case underscores the complexities in classifying land use for tax purposes, especially when properties serve multiple functions. To qualify for primary production exemptions, the dominant use of the land must be for agricultural activities, not merely preparatory steps. Property owners should carefully assess land usage and maintain clear evidence of dominant agricultural activities to meet exemption requirements.

Is there power to change my Family Trust to remove foreigners?

Your family trust deed must allow this Deed of Variation. Some family trust deeds contain a broad power of amendment and variation. However, those without or with limited variation powers must be carefully reviewed. Legal Consolidated does not provide that service. If you are unsure, seek accounting and legal advice.

Further, some states (e.g. NSW) recognise that some family trusts cannot be amended and will review the family trust on a case-by-case basis. (See, for example, NSW Commissioner’s Practice Note CPN 004 version 2.)

So, it is doubly important that you always lodge a request for a private ruling in that particular state of your unsigned Deed of Variation to exclude beneficiaries.

If the family trust deed does not permit amendments, consult with your accountant and lawyer about seeking Supreme Court directions to vary the trust terms or applying to the Court under the Trustee Act for approval of a specific transaction if deemed expedient.

Does the Family Trust owe ‘foreigners’ money? Unpaid Present Entitlements (UPEs)

After this deed to remove foreigners is signed, those entitlements cannot be paid.

The order of signing the two separate Deeds is as follows:

• sign all the Deeds of Forgiveness to forgive the UPEs first and
• then sign the Deed of Variation to Exclude Foreigners.

Get rid of UPEs Before Excluding Foreigners

Living in London, young William is a ‘foreigner’ under the law. His Dad’s family trust owes him an Unpaid Present Entitlement (UPE).
Before Dad can sign the Deed to Exclude Foreigners, William must forgive the UPE. Dad drafts a Deed of Debt Forgiveness and emails it to William to sign.

John wants to buy some real estate through his family trust. He needs to sign a Deed to Exclude Foreigners. However, John’s family currently owes his son Williams some money. This is called an Unpaid Present Entitlement (UPE).

William now lives in London and is deemed a foreigner by the relevant state.

William must forgive the debt before his Dad signs the Variation to Exclude Foreigners Deed.  His accountant builds a Legal Consolidated Deed of Debt Forgiveness. It is emailed to William, who signs it and emails it back. John now signs the Deed of Variation to Exclude Foreigners.

Get State Revenue approval BEFORE signing Family Trust Variation to remove Foreigners

Before signing your Family Trust variation to exclude foreigners, you must obtain a private ruling from the relevant revenue office. This ruling confirms that your planned changes comply with the law.

Pre-approval is Essential for your Family Trust update

Do not sign the Deed of Variation to remove foreigners without written approval from the Revenue Office. Submit an unsigned copy of the Family Trust Deed to remove Foreigners.

Steps to Signing the Family Trust Deed of Variation to Exclude Foreigners

Sign the deed only after receiving written confirmation from State Revenue. This ensures your deed meets all legal requirements. Only then sign the Deed of Variation.

How do I apply for a Private Ruling with the local revenue office?

This is a sample of a Private Ruling.
Every Family Trust Deed is different.
Before relying on a Deed of Variation to Exclude a Beneficiary, you must get a ruling for your own Family Trust.

Private rulings for each state (other than the Northern Territory, as the NT does not have these taxes.)

• New South Wales
  • Start form: https://www.apps09.revenue.nsw.gov.au/customer_service/forms/tas/privateruling
  • Email: private.ruling@revenue.nsw.gov.au
• Victoria
  • Start form: https://www.sro.vic.gov.au/request-private-ruling
  • Email: technicaladvice@sro.vic.gov.au
• Queensland
  • Start form: https://qro.qld.gov.au/duties/private-ruling/
  • Email: duties@treasury.qld.gov.au
• Western Australia
  • Start form: https://apps.osr.wa.gov.au/portal/0/home (create an account first)
  • Email: online email or telephone on 08 9262 1400
• South Australia
  • Start form: https://www.revenuesa.sa.gov.au/forms-and-publications/information-circulars-and-revenue-rulings
  • Email: revenuesa@sa.gov.au or telephone on (08) 8226 3750
• Tasmania
  • Start form: https://www.sro.tas.gov.au/resources/tasmanian-revenue-online/registration
  • Email: t​axh​elp@treasur​y.tas.gov.au
• Australian Capital Territory
  • Start form: https://www.revenue.act.gov.au/self-assessment-tools-and-forms/forms/land-tax-notification-form
  • Email: https://www.revenue.act.gov.au/contact-us (online) or telephone (02) 6207 0028.

Must the removing foreigners be permanent and irrevocable?

RRS Holdings Aust Pty Ltd ATF RRS Holdings Trust v Chief Commissioner of State Revenue

In the case of RRS Holdings Aust v Chief Commissioner of State Revenue [2024], NSWCATAD 352, the trustee owned residential properties in New South Wales. The trust was classified as a foreign person under section 5A of the Land Tax Act 1956 (NSW). This classification resulted in liability for surcharge land tax for the 2021, 2022, and 2023 tax years.

The trustee attempted to avoid this liability by amending the trust deed. A new clause was inserted stating that foreign persons were not entitled to any income or capital from the trust. However, the New South Wales Civil and Administrative Tribunal (NCAT) ruled that this amendment did not satisfy section 5D(3) of the Act. The amendment failed because it did not irrevocably prevent foreign persons from being potential trust beneficiaries.

The tribunal’s decision highlights a critical issue: excluding foreign persons in trust deeds must be permanent and irrevocable. Any clause that can be later reversed or modified does not meet the required standard under section 5D(3). As a result, the trust remained classified as a foreign person and was liable for the surcharge land tax.

This case serves as a warning to trustees of family trusts and discretionary trusts. If the trust holds or plans to hold property, it is essential to ensure that any exclusion of foreign persons in the trust deed is structured to be irrevocable. Failure to do so leads to adverse financial consequences, including ongoing liability for surcharge land tax.

At a later time, can I reverse the Family Trust variation to remove ‘foreigners’?

The [NSW] Chief Commissioner will not be satisfied that there is no scheme or arrangement to avoid tax, where the amendment of the trust deed to remove the trustee’s power to make a distribution to a foreign person is not irrevocable.

Does a Deed of Variation work retroactively?

Q: I just got a big stamp duty and land tax penalty bill. Is there a document I can sign that works in the past to retrospectively exclude foreigners? Can I retroactively exclude foreigners?

A: At least in NSW, you cannot. Once you incur these costs, you cannot undo them by changing the trust deed retrospectively. You must prepare and amend trust deeds according to state laws before any property transactions. Legal Consolidated holds the view that other states would follow NSW in this approach.

In the case Chloe Adolphi Pty Ltd as trustee for The Chloe Adolphi Family Trust v Chief Commissioner of State Revenue [2024] NSWCATAD 48, the Trust tried to amend its trust deed with a deed of rectification to exclude foreign beneficiaries retroactively. The Trust was established in April 2021 and acquired NSW property in May 2021 without excluding foreign persons.

A rectification deed was signed in December 2022, but the court held that such a deed could not retroactively alter the trust’s status to avoid past liabilities. Therefore, a deed of rectification signed today cannot operate in the past.

The Family Trust must be amended before acquiring residential property to escape foreign surcharges. See, for example, the Victorian State Revenues’ comment:

‘…persons considering purchasing residential property can ensure that they are not liable for the foreign purchaser additional duty by … amending the [Family Trust] trust deed so that there are appropriate restrictions on foreign persons as potential beneficiaries (e.g. include an express exclusion clause for foreigners). Importantly, any amendment will have to be done prior to the dutiable transaction completing (i.e. prior to settlement).’ [italic inserted by Legal Consolidated]

Rather than sign this Deed, can I stop distributing it to foreigners?

Merely choosing not to distribute to foreign beneficiaries does not stop the surcharge. This approach is ineffective because the applicable law evaluates whether a trust faces these surcharges based on including foreign persons in the trust deed, regardless of actual distributions.

The surcharges still apply even where the discretionary trust has no foreign controllers and has never been distributed to a foreign beneficiary

What if the ‘foreigner’ is also an Appointor, Trustee or Default Beneficiary?

If a ‘foreign person’ holds the role of appointor, trustee, or director/shareholder of a company, they exercise significant control over the trust’s operations. You may need to build two separate Deeds of Variation:

1. Foreigner Deed of Variation Update, and then build
2. the second document, which is called a Change Trustee, Appointors and excludes a Beneficiary Deed of Variation

In summary, simply using a deed of variation to remove foreigners does not resolve the issue of a ‘foreign person’ who also occupies these key positions.

Is the Deed of Variation to exclude foreigners the right document for my Family Trust?

Legal Consolidated Barristers and Solicitors does not provide legal advice. This Deed of Variation is designed to apply across all Australian states and the Australian Capital Territory (it does not apply to Northern Territory land as the NT does not impose these surcharges).

However, not all jurisdictions require excluding all such persons, and some may not require this Deed of Variation. Requirements can be less stringent in some states.

Moreover, the type of land your Family Trust intends to acquire might not necessitate excluding foreigners.

Do not sign this legal document until you have consulted with your accountant and lawyer to confirm its suitability for your Family Trust.

Additionally, before signing, ensure the local revenue office in the state where your family trust will own land has approved the Deed through a written private ruling.

Is the Family Trust Deed to remove foreigners set and forget?

Australia comprises eight distinct jurisdictions, each with its own legal system. Each jurisdiction’s laws are constantly in flux, adapting to new legal interpretations and international agreements.

NSW’s Tax Treaty Adjustments in 2023

In 2023, NSW changed its surcharge laws following a court decision that found the previous regulations violated international tax treaties, including agreements with Finland, Germany, India, Japan, New Zealand, Norway, South Africa, and Switzerland. These treaties incorporate non-discrimination clauses prohibiting higher taxation on foreigners compared to Australians.

As a result of the court’s ruling, Revenue NSW was required to refund the excess tax collected from nationals of these treaty countries. However, some states decided against implementing similar refund measures. This variation in response highlights the differing approaches to international tax treaty obligations across Australian jurisdictions.

At NSW’s request, the Commonwealth government asked for the laws to be changed. But the changes may not have worked.

This is just one of many war stories reported to us by the 4,600 accountants, lawyers, and financial planners who build legal documents on our website.

The eight payroll systems were aligned, so why do not these foreign rules?

Many accounting houses, financial planning groups and law firms, including Legal Consolidated, lobbied for many years for consistency in the state payroll taxes.

By 2010, all eight jurisdictions had aligned their payroll tax provisions. This major step simplified the tax landscape for cross-border employers, with NSW, VIC, TAS, NT, and SA adopting nearly identical payroll tax legislation. This alignment has significantly eased the administrative burden across state lines.

Legal Consolidated advocates for foreign penalty taxes to be unified across Australia

As a national law firm, Legal Consolidated actively lobbies state governments (and the Commonwealth) to align various areas of tax law, including the land tax and stamp duty foreigner surcharge. This alignment would significantly benefit investors and trust structures operating across Australia.

Are the foreigner removal laws for Trusts likely to change again?

Legal Consolidated believes that this area of law has not settled down. In our law firm’s view, there will be State and ACT government changes and court interpretations for some years. Join our free weekly newsletter to stay abreast of the changes as they unfold.