Trusts

Special trusts do not receive the land tax threshold. They are taxed at a flat rate of 1.6 per cent for amounts up to the premium land tax threshold and then at 2 per cent.

A special trust is when a trustee is the only person who meets the definition of an owner for land tax purposes and beneficiaries are not.

A special trust must meet one of the following trust definitions as per Section 3A of the Land Tax Management Act, 1956:

• most family trusts
• discretionary trusts (see Revenue Ruling: Surcharge Land Tax and Duty - Discretionary Trusts and Commissioner's Practice Note: Foreign surcharges and discretionary trusts)
• most unit trusts and
• some trusts created by a will.

Fixed trusts are eligible for the land tax threshold.

A fixed trust is where the beneficiaries or unit holders are considered owners of the land as at the taxing date. This is because they are presently entitled to the income and capital of the trust and these entitlements cannot be varied by the trustee in any way. Fixed trusts include some unit trusts and bare trusts (Fixed trust has the meanings given by Section 3A (2) and Sections (3A) and (3B) of the Land Tax Management Act, 1956).

To qualify as a fixed trust, the trust deed must satisfy the following ‘relevant criteria’:

• the unit holders are presently entitled to all the income of the trust, after payment of the proper expenses incurred by the trustee in authorised administration of the trust
• the unit holders are presently entitled to the capital of the trust and may require the trustee to wind up the trust and distribute the trust property or the net proceeds of the trust
• these entitlements cannot be removed, restricted or otherwise affected by the exercise of any discretion or by a failure to exercise any discretion, conferred on a person by the trust deed
• for unit trusts only one class of units can be issued, and the proportion of trust capital a unit holder is entitled to on winding up or surrender of units must be fixed and must be the same as the proportion of income of the trust to which the unit holder is entitled.

Restructuring a unit trust

Unit trusts that do not meet the relevant criteria and are special trusts are able to restructure their trust deed to be considered a fixed trust for future tax years.

To make sure your amended deeds meet the requirements, go to our secure online portal and upload:

• a draft copy of the amended trust deed, and
• a full copy of the original trust deed, if you have not already given this to us.

Before you amend a trust deed, we always recommend seeking professional financial and legal advice.

Learn more about amending a unit trust deed in Commissioner’s Practice Note: Unit Trust Deed Amendments.

Liability of unit holders in a fixed trust

If a trust satisfies the relevant criteria the persons who are beneficiaries of the trust under the trust deed are taken to be owners of an equitable estate in the land.

Under section 25 of the Land Tax Management Act, 1956, owners of an equitable estate or interest in land are liable in respect of land tax as if they were legal owners of the land. Owners of an equitable estate in land are treated as secondary taxpayers.

Therefore a unit holder’s interest in the unit trust, who owns other taxable land, or is a special trust, are assessed on the combined value of their interest of the land held in the trust and any other taxable land owned.

They may be entitled to a secondary deduction to prevent double taxation.

All fixed unit trusts must provide details of the unit holders.

Assessing a trust

A unit trust may be a special trust, a fixed trust or a family unit trust.

To be a fixed trust, certain criteria apply. If these criteria do not apply, the trustee may restructure the trust deed to meet the criteria but the threshold will only apply from the next tax year.

Unit trusts must meet the relevant criteria contained in section 3A(3B) of the Land Tax Management Act, 1956 to be considered a fixed trust.

A trustee must lodge a land tax return, if the land is subject to a trust (Section 12 (1C)) of the Land Tax Management Act, 1956. A copy of the trust deed should be lodged with the return.

How the land tax threshold affects the beneficiaries or unit holders as secondary taxpayers

If a beneficiary or a unit holder owns other taxable land, or is a special trust, they are assessed on the combined value of their interest of the land held in the trust and any other taxable land owned. They may be entitled to a secondary deduction to prevent double taxation.

Bare trusts

A bare trust is a type of fixed trust where the trustee and defined beneficiaries have complete control of the trust.

Given their structure, the land tax implications of bare trusts vary.

Superannuation trusts receive the land tax threshold. A superannuation trust can be

• a complying superannuation fund
• a complying approved deposit fund, or
• a pooled superannuation trust under sections 42, 43 and 44 of the Superannuation Industry (Supervision) Act 1993.

If a superannuation trust is not a complying or pooled trust and is not a fixed trust, it is a special trust.

A trust created by a will receives the land tax threshold. However, testamentary discretionary trusts become a special trust two years after the date of the testator’s death, or a further period as approved by the Chief Commissioner of State Revenue..

Family unit trusts receive the land tax threshold. A family unit trust is classified as a fixed trust

• when land is held land at midnight on 31 December 2005 with a taxable value of $1 million or less
  where the unit holders have a fixed entitlement to income or capital, and
• where 95% or more of the units are owned by the same family group.

A family group consists of persons:

• who are related to each other by blood, as well as adopted children and their spouses
• if any of the units are owned by a trustee, the ultimate beneficiary must also be a member of the same family group. This excludes discretionary trusts.

Certain criteria must be met to continue to qualify as a family unit trust. Family unit trust has the meaning given by Schedule 1AA (2) of the Land Tax Management Act 1956).

• If a person holds units as trustee (e.g. as trustee of a complying superannuation trust) and the members of the trust are all members of the same family group, the units will be regarded as being owned by members of the same family group for the purposes of determining whether the 95% test is satisfied.
• If the trust acquires additional land after midnight 31 December 2005 that makes the combined taxable land over $1 million, the trust will be assessed as a special trust, for the tax year following the purchase.
• The unit holders are entitled to a fixed proportion of any distribution of income or capital of the trust made by the trustee, based on the proportion of income or capital units which each person owned in the trust.
• If any new units are issued, redeemed or cancelled, the trust will continue to be assessed as a fixed trust, provided the proportion of units owned by members of the same family group remains at least 95%. The trust must meet this requirement at all times or it will become liable as a ‘special trust’ for the following land tax year.

Concessional trusts – as defined by Section 3B of the Land Tax Management Act 1956 – do receive the land tax threshold.

These are trusts that hold land for the benefit of someone who is:

• under 18 years old
• subject to a guardianship order under the Guardianship Act 1987
• in the ‘target group’ under the Disability Inclusion Act 2014, or
• the principal beneficiary of a special disability trust (within the meaning of section 1209L of the Social Security Act 1991 of the Commonwealth).

A charitable trust has been created to relieve poverty, to advance education or religion, or to provide a community benefit.

Charitable trusts receive the land tax threshold and may be eligible to apply for a land tax exemptions.