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Business Update (Issue 26)

By on April 20, 2006

New Victorian Land Tax Trust Provisions

The Duties and Land Tax Acts (Amendment) 2005 gives effect to new land tax trust provisions.

The key elements of the new land tax trusts model are:

As from 1 January 2006, a tax surcharge of 0.375 cents will apply for trusts holding Victorian property. This surcharge does not apply to trusts with land holdings valued above $2.7 million.

Discretionary Trusts

As a transitional measure, trustees of existing discretionary trusts will have a one-off opportunity to nominate a beneficiary of the trust;

  • The Trustee will then be assessed at ordinary land tax rates on the trust land; and
  • The nominated beneficiary will also be assessed at ordinary rates in respect of both the trust land and any other land owned by the beneficiary – subject to a deduction for any land tax payable by the trustee.

However, any land acquired by a discretionary trust after 31 December 2005 will be taxed solely in the hands of the trustee at the surcharge rate subject only to the principal place of residence exemption.

Fixed Trusts

Trustees of fixed trusts and unit trusts who provide the Commissioner of State Revenue with details of beneficial interests/unit holdings in trust land will be assessed on trust land at ordinary land tax rates:

  • Beneficiaries and Unit holders will be assessed at ordinary rates in respect of both their respective proportion of trust land (based on the proportion of beneficial interest or unit holding) and any other land owned by them—subject to a deduction for any land tax payable by the trustee.
  • Contrary to the position in respect of discretionary trusts, if a fixed trust or unit trust acquires land after 31 December 2005, tax at ordinary rate will be applied if required notification has been given concerning the holders of beneficial interests or units in the trust.
  • If the beneficiary or the unit holder does not own other taxable land they will not receive a separate land tax assessment.

The following trusts are excluded from the above:

  • Charitable trusts
  • Concessional trusts
  • Public unit trust schemes
  • Wholesale unit trust schemes
  • Trusts the only beneficiary/ies of which are certain clubs or the members of such clubs
  • Trusts established by a will but only for a period ending on the later of:
    • 3 years after the testators death or such further period as the Commissioner may approve; or
    • If at the testator’s death all beneficiaries are minor then, the 18th birthday of the first beneficiary to turn 18
  • Trusts which for any tax year are superannuation trusts.

Beneficiaries of excluded trusts will not pay land tax on property held in trust for them. For all above excluded trusts, the trustee will be assessed at ordinary rates.

  • In most cases, land held in trust which is used as a principal place of residence of a beneficiary of the trust when that beneficiary has been nominated (and which is not otherwise exempt from land tax) will not be subject to the above arrangements.
  • Current exemptions for land which is held in a trust will not be affected by the above arrangements.
  • All trustees holding Victorian land on trust are required to submit a one-off return by 31 December
  • The State Revenue Office has extended this deadline to 31 March 2006.
  • There will be various ongoing requirements to notify the Commissioner in relation to Land held in trust.
  • Any acquisition or disposition of trust land
  • Any change in category of trust
  • Any change in beneficial interest in a fixed trust
  • Any change in unit holdings in a unit trust scheme

WHAT YOU NEED TO DO

Notify

All trustees (including trustees of excluded trusts) need to notify the State Revenue Office (SRO) of all properties held in trust by 31 March 2006.

However, the SRO has advised that it intends to write to all known trustees except those who are trustees of land currently exempt from Land Tax.

The SRO will request details of the type of trust including whether the trust is an excluded trust, land held by the trust and whether any of the land is used as a principal residence.

At the same time the SRO will provide nomination forms to allow details of trust land and nomination to be dealt with at the same time.

If you are a trustee of taxable land and have received a trust return or nomination form, then we recommend you contact us in relation to making relevant disclosures.

Nominate

If you are a trustee of an existing discretionary trust you have a one-off opportunity to nominate the beneficiary.

If you are trustee of a fixed or unit trust you can notify a beneficiary/beneficiaries or for unit trusts, the unit holder.

Once such nomination or notification is made the trustee will only be taxed at ordinary tax rates. This must be done by 30 June 2006.

Please note that the SRO has stated that it will contact known trusts and send out relevant nomination forms.

Again, if you have not received an advices from the SRO in relation to your trust please contact us in relation to making the relevant nominations.

Ongoing Requirements

Please note the ongoing requirements to notify the Commissioner in relation to any land acquisitions or dispositions and changes to trust structures.

If you have any queries, please contact Nevett Ford to discuss your specific needs: Phone: 03 9614 7111 Fax: 03 9614 3192.
Information supplied by Nevett Ford

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