Last year we published an article on this website setting out the amendments that were to occur to the Land Tax Act 2005 (Vic) (which came into operation on 1 January 2006). Those amendments incorporated the imposition of a special trust surcharge rate (surcharge) for trusts with aggregate landholdings above $20,000. The surcharge is 0.375% for trusts with landholdings between $20,000 and $1.62M, reducing by scale for landholdings between $1.6M and $2.7M. The surcharge does not apply to trusts with landholdings above $2.7M.
Defined categories of trusts are not subject to the surcharge, including charitable trusts, concessional trusts, public unit trust schemes, wholesale unit trust schemes, trusts for clubs, superannuation trusts and (for a specified period) trusts established by will. Trustees of excluded trusts will continue to be assessed at standard land tax rates and beneficiaries of such trusts will not be assessed on the land held in trust.
Land held in trust which is already exempt from land tax (eg, land used for primary production) will remain exempt.
Where a trustee does not wish to be taxed at the surcharge rate on property owned by the trust as at 31 December 2005, it will need to:
- nominate a beneficiary (relative to discretionary trusts); or
- notify the beneficial interest or unit holdings in the trust property (relative to fixed trusts and unit trusts).
Nomination/notification forms must be submitted to the SRO on or before 30 June 2006 (the forms are available on the SRO website: www.sro.vic.gov.au). The land tax liability of trustees who notify/nominate will then be assessed at the standard land tax rate on trust land acquired on or before 31 December 2005. The beneficiary/unitholder will also be assessed at the standard land tax rates on trust land (together with any other land they own). A credit system has been designed to avoid double taxation of the trustee and the beneficiary/unitholder.
“Discretionary trust” is defined and trustees will need to determine whether the trust in question falls within that definition (what might usually be considered a discretionary trust may not be so considered under the Act).
Trustees will need to determine whether a nomination should be made and who should be nominated. Mathematical calculations will shape these decisions and trustees will need to take into account the value of the trust property and the beneficiary’s other taxable landholdings (if any).
Nominations can only be changed if the beneficiary dies or if the SRO considers that it is “just and reasonable” for an alternate beneficiary to be nominated. Revocation of the nomination by the beneficiary will result in the trustee being subject to the surcharge.
Trustees will be liable for the surcharge in respect of land acquired after 31 December 2005 (unless the land is a principal place of residence of the nominated beneficiary).
Trustees will again need to undertake calculations in determining on whether or not to notify.
To avoid the surcharge, trustees of fixed or unit trusts which first acquire land after 31 December 2005 must notify the SRO of the beneficial interests/unit holdings by 31 December in the year of acquisition.
Trustee may withdraw a notification of beneficial interests/unit holders, however there is an issue as to whether a decision of this nature can be reversed.
Where a principal place of residence is held on trust (other than a unit trust or a discretionary trust), the position remains unchanged and the property is exempt from land tax if the land is occupied as the beneficiary’s or beneficiaries’ principal place of residence.
Relative to discretionary trusts and unit trusts, imposition of the surcharge rate may be avoided by the nomination of an individual beneficiary or unit holder who occupies the land as their principal place of residence. Nomination should be made on or before 30 June 2006. Trustees will then be assessed on the residence at the standard land tax rate on a single holding basis (so long as the property is occupied as a principal place of residence). The PPR beneficiary/unit holder will not be assessed.
Only one PPR beneficiary/unit holder can be nominated and a nomination once made cannot be changed (save in the case of death).
In connection with discretionary trusts, the PPR beneficiary need not be the same as the nominated beneficiary for land acquired on or before 31 December 2005. However, relative to unit trusts, the trustee must elect between notifying the SRO of the unit holders or nominating a PPR unit holder.
For further information, please contact John Chamberlin on (03) 9608 2121 or j.chamberlin@cornwalls.com.au
