Land tax and trusts

On Friday 21 October 2005, the Victorian Government announced some significant changes to the way properties owned by a trust are to be treated for land tax.

Land tax is a progressive tax that uses a sliding scale to assess all properties owned by a particular taxpayer as at 31 December each year. This excludes owner occupied residential properties. In the cases of companies and individuals, it has been relatively simple to identify land holdings and assess these for land tax.

For trusts that own land, the difficulty of determining who is the beneficial owner has often meant that no land tax has been assessed. The new rules, effective from 1 January 2006, operate as follows:

	Each trust must nominate a beneficiary who will be the person assessed for land tax, or
	A surcharge of 0.375 percent per annum will be added, as a penalty, to the land tax bill and assessed to the trustee.

There are some exemptions to the rules, for example the surcharge will not apply to superannuation funds, charities, some trusts established under a will, and public unit trusts.

Nominating a beneficiary

It appears that the legislation will allow any beneficiary of the trust to be the nominee for land tax. This does not mean that the nominated beneficiary needs to receive income from the trust for income tax purposes. Therefore, it may be possible to nominate a spouse or family member solely for land tax purposes. There may be planning opportunities in determining the appropriate nominee. We understand this nomination will be done as a once-only notification to the State Revenue Office prior to June 2006. Thereafter, details of beneficiaries will be updated when land transfers occur.

We understand that where a trustee acts for two or more trusts, separate assessments will be made for each trust. Similarly, where a trustee owns land in its own right, separate assessments will be made, allowing both parcels of land to get the benefit of the sliding scale of rates.

Please note that the legislation has not yet been introduced to State Parliament, and we will advise further details when the legislation has been passed. Further details will be available on the State Revenue Victoria website www.sro.vic.gov.au when released.

Published : 26 October 2005