• Trustees of discretionary trusts that may purchase direct or indirect interests in Victorian residential land, and their advisers.


  • The Victorian State Revenue Office has announced that discretionary trusts that own Victorian land will be subject to additional foreign purchaser duty if there is potential that the trust may benefit a foreign person.


  • Review your trust deed to identify any potential beneficiaries that are 'foreign persons' you seek advice about varying the trust deed to include a foreign beneficiary exclusion clause.

The Victorian State Revenue Office (VSRO) has announced that from 1 March 2020, a discretionary trust that has any potential foreign beneficiaries will be considered to be a foreign trust, and subject to an additional 8% foreign purchaser duty on the acquisition of residential land in Victoria. This signals the end of the 'practical approach' the VSRO has applied to this issue since the introduction of the additional foreign purchaser duty in 2015.

The 'practical approach' to foreign additional duty provisions

On 1 July 2015, the Victorian Government introduced additional foreign purchaser duty on dutiable transactions involving residential land. The additional duty extended to residential land purchased by a trust where a substantial beneficial interest in the trust was held by foreign persons (where a substantial interest is an interest of 50% or more). The rules provide that a beneficiary of a discretionary trust is deemed to have an interest equal to the maximum percentage of the capital of the trust that the beneficiary could receive if the trustee elected to exercise its discretion in that beneficiary's favour. Effectively, that meant that almost all discretionary trusts were foreign for the purposes of the additional foreign purchaser duty rules.

In response to stakeholder concerns raised about these provisions, the VSRO applied a 'practical approach', wherein additional foreign purchaser duty would not apply if a trust was unlikely to make a distribution to a foreign person.

Practical approach will not apply to property purchased after 1 March 2020

The VSRO has announced that as of 1 March 2020 the 'practical approach' will no longer apply. That is, from 1 March 2020 most discretionary trusts will be considered foreign and subject to foreign purchaser additional duty unless the trust deed is varied to specifically exclude foreign beneficiaries.

Transitional provisions

The VSRO has confirmed that this new approach will not apply to transactions that arise from contracts that were entered into before 1 March 2020, even if the transactions themselves occur after that date.

Action required

If you or your clients are considering acquiring a direct or indirect interest in residential property in Victoria through a discretionary trust, we recommend that the trust deeds be reviewed and (where necessary) varied to specifically exclude foreign beneficiaries. This process is largely consistent with the requirements in New South Wales, but unhelpfully, the definition of 'foreign person' is not the same in Victoria as it is in New South Wales, so care should be taken in this regard.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.