Land tax trusts - frequently asked questions

General

1. How does land tax usually apply to land held under a trust?
2. When will a notification default arise?
3. I am a trustee of a trust. Do I have to notify the Commissioner each time I buy new Victorian land as a trustee?
4. I am a trustee of a trust that acquired trust land some time ago, but I have not notified the State Revenue Office. What do I need to do? What are the consequences?
5. I am a trustee of two separate trusts. Will the land in those trusts be taxed on an aggregated basis? Can a nomination/notification of beneficiaries be made for each trust?

6. I am a trustee of a trust and have acquired Victorian land with another person (e.g. 50% held by the trustee and 50% by the other person). Will the joint ownership assessments be subject to the trust surcharge rate?

Discretionary trusts

1. What kind of notifications can a discretionary trust make so that the surcharge does not apply? What are the consequences of the different notifications?
2. I am a trustee of a discretionary trust. Can I still nominate a beneficiary in relation to pre-2006 land?
3. I am a trustee of a discretionary trust which holds trust land acquired before 2006 and had previously nominated a beneficiary. In what circumstances can the nominated beneficiary be changed?
4. I am the nominated beneficiary of a discretionary trust which holds both pre-2006 land and post-2006 land. How does this impact my land tax liability?

Unit trusts and fixed trusts 

1. What kind of notifications can a unit trust make so that the surcharge does not apply? What are the consequences of the different notifications?
2. What kind of notifications or nominations can a fixed trust make so that the surcharge does not apply? What are the consequences of the notifications?
3. What if the beneficiary of the trust is a trustee of another trust (e.g. the unitholder of a unit trust is a trustee of a fixed trust)?

Principal place of residence (PPR) beneficiaries

1. I am a trustee of a unit (or discretionary) trust which holds two properties, both of which are used as the principal place of residence (PPR) of one or more of the beneficiaries. Can I nominate more than one PPR beneficiary for a trust?
2. What are the time limits to make a notification of beneficiaries or nomination of the PPR beneficiary?
3. What is the consequence of a beneficiary of a fixed trust using the trust property as a PPR?

Excluded trusts

1. I am a trustee of an excluded trust. Do I have to lodge the notice of trust acquisition of an interest in land? What are some of my obligations if the trust ceases to be an excluded trust?

2. How is a beneficiary of a trust, who is a trustee of an excluded trust (e.g. the unitholder of a landholding unit trust is a trustee of a complying superannuation fund), taxed? Will the exclusion for complying superannuation funds apply to the beneficiary?

Land tax groups

1. Where a corporate trustee holding trust land constitutes a group with a related corporation, will the trust land be aggregated with land held by the related corporation under the grouping provisions?
2. The beneficiary of a trust is a company (Company A), which constitutes a land tax group with a related company (Company B). If the trustee notifies us of the beneficiary to avoid the surcharge rate, how will the trust land be assessed?

Deceased estates

1. I am a personal representative (i.e. executor or administrator) of a deceased estate. Will the land tax surcharge rate apply to the land held under the estate?
2. When does the State Revenue Office consider the administration of an estate completed?
3. I am a personal representative (i.e. executor or administrator) of a deceased estate. It has been nearly three years since the testator died, and the administration of the deceased estate has not yet been completed. What should I do?
4. What happens after the administration of the estate is completed?
5. Under a will, a beneficiary was granted a life estate. What happens to the land tax liability in respect of that land?
6. Under a will, a beneficiary was granted a right to reside. What happens to the land tax liability in respect of that land?

General

1. How does land tax usually apply to land held under a trust?

Generally, land held under a trust (except for excluded trusts and administration trusts) is assessed at the surcharge rate of tax. The surcharge rate is higher than the general rate of tax and applies to land holdings with a taxable value more than $25,000 but less than $3,000,000.

This surcharge rate may not apply if you make certain notifications or nominations of the beneficiaries of the relevant trust.

A notification or nomination can affect the rate of land tax that applies to a trust. The notifications that you can make depend upon the type of trust. Each notification can have a different consequence.

2. When will a notification default arise?

A notification default occurs when a trustee fails to notify us of certain events (listed in s46K of the Land Tax Act 2005) within the required timeframe.

These events include:

• the acquisition of land as trustee of a trust
• a change in type of trust
• a change in the beneficial interests of a fixed trust or a change in the unit holdings in a unit trust if a notification of beneficiaries of unitholders has previously been made
• where the nominated PPR beneficiary ceases using the trust land as their PPR
• where the personal representative of a deceased estate completes the administration of that estate.

There are also notification defaults (listed in s104A of the Land Tax Act 2005) that relate to a failure to notify us of an error or omission in your land tax assessment relating to:

• any land in Victoria owned by the person that is not specified in the notice
• in the case of a notice of assessment for land jointly owned by two or more owners, any land in Victoria owned by the joint owners that is not specified in the notice
• any land specified in the notice as exempt land.

A failure to notify means the trustee may be liable to penalty tax from 25 to 75% of the additional amount of tax that the trustee would have been assessed as liable to pay had the notification been made in time.

3. I am a trustee of a trust. Do I have to notify the Commissioner each time I buy new Victorian land as a trustee?

Yes. You must notify us each time the trust purchases new Victorian land. You can do this by notifying us of a trust acquisition of an interest in land, within one month of acquiring Victorian land.

Failing to advise us in this time frame is a notification default and you may be liable to pay penalty tax as set out above.

4. I am a trustee of a trust that acquired trust land some time ago, but I have not notified the State Revenue Office. What do I need to do? What are the consequences?

You must notify us of a trust acquisition of an interest in land. The consequences of failing to notify us depend on:

• the type of trust
• how long ago you acquired the trust land
• the reason for not notifying us when you were required to do so.

Failing to advise us within one month of acquiring the land is a notification default and you may be liable to penalty tax as set out above.

You should contact us on 13 21 61 for further information about your land tax liabilities.

5. I am a trustee of two separate trusts. Will the land in those trusts be taxed on an aggregated basis? Can a nomination/notification of beneficiaries be made for each trust?

If you are a trustee of two or more trusts with different beneficiaries in each, you will be assessed separately on the land holdings of each trust.

Depending on the type of trust, you may be entitled to make a notification of the beneficiaries or nominate a PPR beneficiary for each trust.

6. I am a trustee of a trust and have acquired Victorian land with another person (e.g. 50% held by the trustee and 50% by the other person). Will the joint ownership assessments be subject to the trust surcharge rate?

Generally, where land is owned jointly by two or more persons, the joint owners together (called the primary taxpayers) receive one combined assessment and are assessed together as if they are one owner. The assessment for the primary taxpayers will only be sent to one of the joint owners.

Each joint owner (called the secondary taxpayer) is assessed separately for that person’s interest in the jointly owned land together with any other land owned by that person.

All joint ownerships (primary taxpayers) will be assessed at the general rates regardless of the combination of joint owners (such as joint ownership between a trustee and an individual or a trustee and another trustee).

The trust surcharge rates will apply to the trustee when it is assessed for its share of the jointly owned land as the secondary taxpayer, unless the trustee lodges the relevant notifications with us.

Discretionary trusts

1. What kind of notifications can a discretionary trust make so that the surcharge does not apply? What are the consequences of the different notifications?

If you are a trustee of a discretionary trust holding land that was acquired prior to 1 January 2006 (pre-2006 land), it is now too late to nominate a beneficiary for the land. There are two exceptions: where the previous nominated beneficiary has died or revoked the nomination, or where the nomination is lodged within three months of the trust first becoming liable for land tax.

The Commissioner must consider if the subsequent nomination is just and reasonable. If the Commissioner decides it is just and reasonable, the nomination will take effect for the land tax year following the calendar year in which it is lodged.

A trustee of a discretionary trust cannot nominate a beneficiary for land acquired from 1 January 2006 (post-2006 land).

If a beneficiary has not been nominated in relation to pre-2006 land of a discretionary trust, trust surcharge rates apply to the land. An exception to this is if there is a beneficiary that has been nominated as the PPR beneficiary for a particular land.

Note: if a beneficiary has been nominated for pre-2006 land within the timeline stipulated under s46F of the Land Tax Act 2005 and we have been notified that the land is held on trust by the trustee, land tax will be calculated as follows:

• The trustee will be subject to general rates for the pre-2006 land.
• For the trustee, surcharge rates apply to any post-2006 land (unless there is a nominated PPR beneficiary).
• If the trustee of a discretionary trust with a nominated beneficiary owns both pre and post-2006 land, land tax is assessed using the formula in s46G(4) of the Act (outlined in the example below).
• The nominated beneficiary is deemed to be the owner of the pre-2006 land and will be assessed on this land together with any other land that they own at the general land tax rates. To prevent double taxation, a deduction for the proportional tax on the trust land will be allowed. If the nominated beneficiary does not own any other land, this deduction will reduce their liability to nil and they will not receive an assessment.

However, if a beneficiary uses trust land (pre or post-2006) as their PPR (and the PPR requirements are satisfied), you may nominate that beneficiary as the nominated PPR beneficiary for the trust, provided there is no substantial business activity.

Effect of a PPR nomination

If, for a discretionary trust, a nominated PPR beneficiary has been nominated in relation to the land (provided the PPR exemption requirements are met), land tax will be calculated as follows:

• The trustee will be separately assessed as though it were the only land owned by the trustee, at the general land tax rates in relation to the PPR land. The trustee will be assessed at surcharge rates for all post-2006 land (except where there is a PPR beneficiary nomination in relation to the post-2006 land) and where a beneficiary has not been nominated in relation to pre-2006 land. Any pre-2006 land where a beneficiary has been nominated will also be subject to general rates.
• The nominated PPR beneficiary of the discretionary trust is not assessed for land tax on the PPR land.
• The PPR nomination takes effect for the tax year in which it is lodged.
• There can only be one nominated PPR beneficiary for each trust. 
• The PPR beneficiary must be a natural person and must be a beneficiary of the trust.

2. I am a trustee of a discretionary trust. Can I still nominate a beneficiary for the first time in relation to pre-2006 land?

The deadline to nominate a beneficiary in relation to pre-2006 land has now passed. Generally, a late nomination of the beneficiaries of a discretionary trust holding pre-2006 land will not be accepted as the Commissioner has no discretion to accept a late nomination. Therefore, in most cases the surcharge rate cannot be avoided in relation to pre-2006 land. There are two exceptions to this:

• where the nomination is made within three months after the day on which a liability first arises for land tax on the land that is subject to the trust
• where the beneficiary uses the land as their PPR, in that situation the discretionary trust can nominate a PPR beneficiary.

3. I am a trustee of a discretionary trust which holds trust land acquired before 2006 and had previously nominated a beneficiary. In what circumstances can the nominated beneficiary be changed?

The nominated beneficiary can be changed if the previously nominated beneficiary has died or revoked the nomination.

The Commissioner will only consider a change of the nominated beneficiary if it is just and reasonable. The Commissioner will consider any applications to change a nominated beneficiary on a case-by-case basis. It will not be considered just and reasonable to change the nominated beneficiary simply because the beneficiary acquires other taxable land and becomes liable to pay land tax on the trust land.

Any changes accepted will take effect for the tax year following the calendar year in which the nomination is lodged.

4. I am the nominated beneficiary of a discretionary trust which holds both pre-2006 land and post-2006 land. How does this impact my land tax liability?

The nomination can only apply to the trust land acquired pre-2006. As the nominated beneficiary, you are deemed to be owner of the pre-2006 trust land and you will be assessed on this land together with any other taxable land you own when calculating your land tax liability at general rates of land tax. To prevent double taxation, you are entitled to a deduction for the proportional tax on the pre-2006 trust land.

The nomination cannot apply to the post-2006 land. The trustee is assessed on the post-2006 land held on trust at the surcharge rates. The post-2006 trust land is not included when assessing your tax liability. However, if you use any of the trust land (pre or post-2006) as your PPR (and the PPR requirements are satisfied), the trust may nominate you as the nominated PPR beneficiary for the trust, provided there is no substantial business activity.

The consequences of a PPR nomination have been discussed above.

Unit trusts and fixed trusts

1. What kind of notifications can a unit trust make so that the surcharge does not apply? What are the consequences of the different notifications?

If you are a trustee of a unit trust, you can only do one of the following (not both):

• notify us of the unit holders of the trust
• nominate a principal place of residence (PPR) beneficiary (where a unitholder, who is a natural person, uses the trust land as their PPR and there is no substantial business activity).

Effect of unitholder notification

Once you have made a unitholder notification:

• The notification takes effect for the land tax year following the calendar year in which the notification is lodged.
• The notification remains in effect until it is withdrawn by the trustee.

If the notification is withdrawn, the trustee cannot lodge another notification subsequently. If there is a change in unit holdings, the trustee must notify us within one month of the changes.

Effect of a PPR nomination

For a unit trust, once you have nominated a PPR beneficiary:

• For the trustee, the trust land used as the PPR of the nominated PPR beneficiary will be separately assessed as though it were the only land owned by the trustee, at the general rates. Any other trust land will be assessed at the surcharge rate.
• The nominated PPR beneficiary of a unit trust is not assessed for tax on the PPR land.
• The PPR nomination takes effect for the tax year in which it is lodged.

There can only be one nominated PPR beneficiary for each trust and the PPR beneficiary must be a natural person who uses the particular land as their PPR and must be a unitholder of the unit trust.

2. What kind of notifications or nominations can a fixed trust make so that the surcharge does not apply? What are the consequences of the notifications?

If you are a trustee of a fixed trust, you can notify us of the beneficial interests in the trust (i.e. the beneficiaries of the trust).

Effect of notification

Once you notify us of the beneficiaries of the trust:

• The notification takes effect for the land tax year following the calendar year in which the notice is lodged.
• The notification remains in effect until it is withdrawn by the trustee.
• If the notification is withdrawn, the trustee cannot subsequently lodge another notification of beneficial interests in respect of the trust.

Land tax calculation

Once you have notified us of the beneficiaries, the land tax is calculated as follows:

• The trustee will be assessed on the trust land at the general rates (instead of the surcharge rate).
• The beneficiary is deemed to be the owner of the trust land (in proportion to their interest in the trust) and will be assessed on this land together with any other land that they own at the general land tax rates.
• To prevent double taxation, a deduction for the proportional tax on the trust land will be allowed for the beneficiary. If the beneficiary does not own any other land, this deduction will reduce their liability to nil and they will not receive an assessment.
• The beneficiary’s deduction is calculated by using the lesser of:
  • the amount of the tax assessed on the trustee that relates to the proportion to the beneficiary’s beneficial interest in the trust land, and
  • the amount of the tax assessed on the beneficiary that relates to their beneficial interest in the trust land.

3. What if the beneficiary of the trust is a trustee of another trust (e.g. the unitholder of a unit trust is a trustee of a fixed trust)?

Where the beneficiary of the trust (first trust) is a trustee of another trust (second trust), the provisions enable a ‘look through’ to the ultimate beneficiaries. This only applies to fixed or unit trusts where we have been notified of the beneficial interests in the first trust.

In the case where the unitholder of a unit trust (first trust) is a trustee of a fixed trust (second trust), the trustee of the unit trust can avoid the surcharge rate by notifying us of the unitholder (i.e. the trustee of the fixed trust). As a consequence of such a notification, the trustee of the unit trust will be assessed on the trust land at the general rates.

The trustee of the fixed trust (second trust) will be deemed to be the owner of the trust land and will be assessed at the surcharge rate. To prevent double taxation, a deduction for the proportional tax on the trust land will be allowed.

The surcharge rate will not apply if the trustee of the second trust in turn notifies the Commissioner of the beneficial interests in the fixed trust. The beneficiaries of the fixed trust will be regarded as the owner of the land and the ordinary rules relating to the taxation of notified beneficiaries will apply.

Principal place of residence (PPR) beneficiaries

1. I am a trustee of a unit (or discretionary) trust which holds two properties, both of which are used as the PPR of one or more of the beneficiaries. Can I nominate more than one PPR beneficiary for a trust?

No. You can only nominate one PPR beneficiary for a trust.

2. What are the time limits to make a notification of beneficiaries or nomination of the PPR beneficiary?

A trustee must first lodge a notice of trust acquisition of an interest in land form within one month of acquiring land as trustee.

A trustee of a fixed trust or unit trust may lodge the notification or change of beneficial interests/unit holdings in land form of the trust at any time. The notification will take effect for the tax year after the calendar year in which it is lodged.

The trustee of a unit or discretionary trust may lodge a PPR beneficiary nomination at any time once the nominated PPR beneficiary has used and occupied the land as their PPR for the relevant period. The PPR nomination will take effect for the tax year in which it is lodged.

3. What is the consequence of a beneficiary of a fixed trust using the trust property as a PPR?

Unlike a discretionary trust or a unit trust, a fixed trust is able to get a PPR exemption where a beneficiary is using trust land as their PPR.

A trustee of a fixed trust receives an exemption from land tax on trust land that is used and occupied by a beneficiary of the trust as their PPR which is proportionate to that beneficiary‘s beneficial interest in the trust land. This is provided the PPR exemption requirements are met.

The beneficiary will not have to pay land tax for the PPR land. 

It is reiterated that this PPR exemption is not available in relation to discretionary trusts or unit trusts. However, a discretionary trust or unit trust can nominate a PPR beneficiary.

Excluded trusts

1. I am a trustee of an excluded trust. Do I have to lodge the notice of trust acquisition of an interest in land? What are some of my obligations if the trust ceases to be an excluded trust?

If the trust is an excluded trust, you are still required to notify us of a trust acquisition of an interest in land.

If the trust ceases to be an excluded trust, you must inform us of this change within one month of that happening. You will also need to notify us if the trust structure has now changed (e.g. if the trust is now a fixed, discretionary or unit trust). You should notify us in writing.

2. How is a beneficiary of a trust, who is a trustee of an excluded trust (e.g. the unitholder of a landholding unit trust is a trustee of a complying superannuation fund), taxed? Will the exclusion for complying superannuation funds apply to the beneficiary?

The trustee of the unit trust can avoid the surcharge rate by notifying us of the unitholders. If this happens, the benefit of the exclusion for the complying superannuation fund will flow through if the trustee of the superannuation fund notifies us.

The trustee of the unit trust will be assessed on the trust land at the general rates, and the trustee of the superannuation fund will be treated as the owner of the land. As the superannuation fund is an excluded trust, the trust surcharge rates do not apply.

Instead, the trustee of the superannuation fund will be assessed on the unit trust land together with any other land held on behalf of the superannuation fund at the general rates, subject to the deduction.

The trustee of the superannuation fund does not need to notify us of the beneficiaries.

Land tax groups

1. Where a corporate trustee holding trust land constitutes a group with a related corporation, will the trust land be aggregated with land held by the related corporation under the grouping provisions?

Generally, corporations that are related are treated as one corporation (a group) and the taxable land of all Victorian land owned by the group will be aggregated to calculate the land tax payable by the group.

Where a related corporation is a corporate trustee, the land held under a trust will not be aggregated under the grouping provisions. The overriding policy is that all trustees will be assessed separately on the land holdings of each trust that they administer, and the company grouping provisions will not alter this.

2. The beneficiary of a trust is a company (Company A), which constitutes a land tax group with a related company (Company B). If the trustee notifies of the beneficiary to avoid the surcharge rate, how will the trust land be assessed?

As a consequence of the notification, the trustee of the trust will not be subject to the surcharge rate and the notified beneficiary (Company A) will be deemed to own the trust land.

If that company (Company A) is grouped with a related company (Company B), the land owned by the two related companies will be aggregated and the two companies will be assessed as a single company and will be jointly and individually liable for the land tax payable by the group. This means we can recover the land tax payable by the land tax group from either company.

Deceased estates

1. I am a personal representative (i.e. executor or administrator) of a deceased estate. Will the land tax surcharge rate apply to the land held under the estate?

The land held under a deceased estate by a personal representative is not subject to the surcharge rate during a concessional period which starts from the date of death and ends on the earlier of the:

• completion of administration of the deceased estate, or
• third anniversary of the death of the deceased person, unless a further period is approved by the Commissioner.

The land held under the deceased estate by the personal representative during the concessional period is considered held under an administration trust for land tax purposes.

2. When does the State Revenue Office consider the administration of an estate completed?

We will consider the administration of an estate completed when:

• The personal representative first assents to the transfer of an estate land to an heir, beneficiary or person entitled under the will, such as a trustee.
• The personal representative has completed all the duties of administering the estate except distribution to the heirs or beneficiaries.
• The personal representative has completed the final accounts of the estate.
• The personal representative has made an interim distribution of any part of the estate to the heirs or beneficiaries and indicated that the estate has sufficient funds to discharge all debts and cover all expenses.
• The personal representative has commenced holding any estate land for a testamentary trust.
• An estate land is transferred to the person entitled to it under the will or testamentary instrument or to an heir of an intestate estate.

If you are uncertain as to whether administration of the deceased estate has been completed, you should seek legal advice.

3. I am a personal representative (i.e. executor or administrator) of a deceased estate. It has been nearly three years since the testator died, and the administration of the deceased estate has not yet been completed. What should I do?

You can apply in writing for an extension of the concession period beyond the three years. Surcharge rates will not apply to land held under the estate during the extended period approved by us.

We will usually only grant an extension of the concession period under exceptional circumstances.

4. What happens after the administration of the estate is completed?

The personal representative must notify us within one month of the completion of the administration of the deceased estate.

If land owned by the estate has been distributed and transferred to the beneficiaries under the will or testamentary instrument, the beneficiaries will be taxed as owners of the land accordingly.

If land owned by the estate has not been distributed or transferred to the beneficiaries but is held by the personal representative (as trustee) on trust for the beneficiaries, the trust land will be assessed under the land tax rules relating to trustees, depending upon the type of trust that has been created. The surcharge rate may apply if the trustee has not lodged the appropriate notifications.

5. Under a will, a beneficiary was granted a life estate. What happens to the land tax liability in respect of that land?

If a life estate is granted to a beneficiary under the will, that beneficiary will be the deemed owner of the land. The land will be aggregated with their other land holdings for the calculation of their land tax liability.

If it is used by that beneficiary as their PPR, then the land may be exempt for land tax purposes if the PPR exemption requirements are met.

6. Under a will, a beneficiary was granted a right to reside. What happens to the land tax liability in respect of that land?

If, under the will, a right to reside is granted to a person who uses the land as their PPR, that land may be exempt for land tax purposes provided:

• the land was previously occupied by the testator as their PPR
• the right was not granted or acquired for monetary consideration.

The person must have been using the land as their land in a manner which satisfies the PPR exemption and must not be claiming the PPR exemption in relation to any other land in Australia.