Amendments to the Land Tax Act 2005 (Vic) come into operation on 1January 2006. The amendments make an owner of Victorian land as a trustee liable for land tax at a special trust Surcharge rate (Surcharge) on the whole of the land subject to the trust.
The Surcharge begins at 0.375% for trust land values above $20,000. The Surcharge decreases for land valued between $1.62million and $2.7million. Land holders already paying the top rate of land tax (ie. land valued over $2.7million) are not affected by the Surcharge.
The Surcharge will not apply to:
- An “Excluded Trust”;
- Land acquired by a “Discretionary Trust” on or before 31 December 2005 provided that the trustee nominates a beneficiary of the trust;
- A “Fixed Trust” provided that the trustee notifies the State Revenue Office of Victoria (SRO) of the beneficiaries of the trust; and
- A “Unit Trust” provided that the trustee notifies the SRO of the unit-holders of the trust.
A trust’s land tax liability will not change under the new provisions for an excluded trust which is defined to be any of a charitable trust, a concessional trust, a public unit trust scheme, a wholesale unit trust scheme, a trust the sole beneficiary of which is a club or the members of a club, a trust established by will, or a Superannuation trust. These categories are further defined in the Land Tax Act.
“Discretionary Trust” is defined. What may be considered a discretionary trust in general parlance may not be a “discretionary trust” for land tax purposes.
The trust deed and all amendments thereto should be considered to establish whether the trust is indeed a “discretionary trust” within the definition.
A Trustee of a discretionary trust may nominate a beneficiary of the trust if the trust property includes any land in Victoria at the date of 31 December 2005. Nominations generally must be made on or before 30 June 2006.
Should the trustee nominate, they will not be liable for the Surcharge on land held in the trust on 31 December 2005.
The trustee will be liable for the Surcharge for any Victorian land acquired by the trust after this date. Further, the nominated beneficiary will be treated as the “owner” of land held in the trust on 31 December 2005 for assessment purposes only. Care will need to be taken whether a nomination should be made and who should be the nominee. Arithmetical calculations will be critical and will need to bring to account the capping provisions for 2006.
The trustee of a fixed trust or unit trust may notify the SRO of the beneficiaries or unit-holders, respectively, and their respective interests in the Victorian land subject of the trust on or before 30 June 2006 in order to avoid the Surcharge.
The fixed trust or unit trust will then be taxed at the non-trust land tax rates. Each beneficiary or unit-holder will be treated as though they own a portion of that land equal to their beneficial interests or quantum of units.
We suggest to a “go forward slowly” approach, particularly considering more commentary will issue from the State Revenue Office and other commentators.
There are a number of subsidiary matters to bring to account such as the status of a residence held in a trust which is occupied as the principal place of residence of a beneficiary of the trust.
For further information, please contact John Chamberlin on (03) 9608 22121 or j.chamberlin@cornwalls.com.au
