In a trust, the legal and beneficial ownership of land are usually held by two different entities. The trustee legally owns the land (i.e. the trustee’s name will be on the certificate of title for the land) and the beneficiary owns the land beneficially (i.e. the trust legally holds the property for the benefit of the beneficiary).

The Land Tax Act 2005 (the Act) contains special rules for trusts. The rules set out a surcharge rate of land tax (subject to some exceptions) if the total value of land that the trust owns is $25,000 or more. The surcharge land tax rate is higher than the general land tax rate.

The surcharge rate does not always apply where land is held on trust. No land tax is payable if the land is land tax exempt (e.g. where the land in a fixed trust is the beneficiaries’ principal place of residence (PPR)). Additionally, the general rate may apply instead of the surcharge rate in relation to an administration trust, an excluded trust or an implied/constructive trust.

From 1 January 2016, an absentee owner surcharge on land tax applies to Victorian land owned by an absentee owner, including absentee trusts. This surcharge increased from 0.5 per cent to 1.5 per cent from 1 January 2017.

In this section we outline:

You can also read our frequently asked questions and our summary of land tax outcomes.

Trustee notification requirements

All trustees must notify us of any Victorian land that they hold on trust or when they acquire additional Victorian land as a trustee.

In addition to lodging a notice of acquisition with the Land Registry, a person who acquires Victorian land as a trustee must lodge a notice of trust acquisition of an interest in land form with us within one month of acquiring the land. A notification must also be lodged each time additional land is acquired by the trustee.

Trustees must also notify us in writing within one month if:

  • There is a change in the type of trust,
  • There is a change in the beneficial interest(s) of a fixed trust, where a notification of beneficial interest is in force,
  • There is a change of unit holdings in a unit trust, where a notification of unit holdings in the trust is in force, or
  • The nominated PPR beneficiary ceases using the trust land as their PPR

All personal representatives of administration trusts that own land in Victoria must notify us within one month of the personal representative:

Failing to notify us within the required time limit (one month) is a notification default under the Taxation Administration Act 1997 and you may be liable for penalty tax on the additional amount that would have been assessed if you had notified us of the issue in time.

Discretionary trusts

Section 3 of the Act defines a discretionary trust as a trust under which the vesting of the whole or any part of the trust property:

  • Is required to be determine by a person either in respect of identity of the beneficiaries or the quantum of interest to be taken, or both, or
  • Will occur in the event that a discretion conferred under the trust is not exercised

A discretionary trust generally does not include an excluded trust, a fixed trust or a trust to which a unit trust scheme relates.

The land tax treatment of discretionary trusts depends on when the relevant land was acquired.

Land acquired on or before 31 December 2005 (pre-2006 land)

A discretionary trust could have nominated a beneficiary but only in relation to pre-2006 land. The deadline for nominating a beneficiary for pre-2006 land has now passed. The exception is where the previously nominated beneficiary has died or revoked the nomination. In this situation you can nominate a subsequent beneficiary. We must consider if the new nomination is just and reasonable.

A trustee of a discretionary trust who acquired pre-2006 land will be assessed at general, and not surcharge, rates if the trustee has nominated the beneficiaries of the trust within the stipulated timeline under s46F of the Act.

For the purpose of calculating land tax liability both the nominated beneficiary and the trustee are seen as owners of the trust land.

If the nominated beneficiary does not own other taxable land, there will only be one assessment for the land which will be issued to the trustee. However, if the nominated beneficiary does own other taxable land, they will be assessed at the general land tax rates on the total value of pre-2006 land in addition to any other taxable land. To avoid double taxation, the nominated beneficiary will receive a deduction for any land tax payable by the trustee for pre-2006 land from land tax payable.

If a nomination was not made or the nomination was lodged outside the timeline under the Act, the trustee is assessed at the surcharge rate. If the beneficiary is using the land as his/her PPR, however, then the trust may nominate a PPR beneficiary. The consequence of a PPR beneficiary nomination is further explained below.

Land acquired post 31 December 2005 (post-2006 land)

A trustee of a discretionary trust who acquired post-2006 land will be taxed at the trust surcharge rate. This applies even if the trustee has nominated a beneficiary for pre-2006 land.

Land tax on both pre-2006 and post-2006 land

The land tax liability of a discretionary trust that has nominated a beneficiary within the stipulated timeline under s46F of the Act and owns both pre-2006 and post-2006 land, is calculated using the following formula as prescribed in s46(G)(4) of the Act.

[(Land tax at general rate on total taxable land) x (Total pre-2006 taxable land ÷ Total taxable land)] + [(Land tax at surcharge rate on total taxable land) x (Total post-2006 taxable land ÷ Total taxable land)]

Fixed trusts

A fixed trust is defined by s3 of the Act to mean a trust that is not an excluded trust, a discretionary trust or a trust to which a unit trust scheme relates.

The beneficiaries of a fixed trust are usually fixed and no other beneficiaries can be added or removed and the proportion of their interest cannot be varied. Certain assets previously allocated to specific beneficiaries cannot be transferred to other beneficiaries.

A trustee of a fixed trust has two options.

  1. Notify us of beneficial interests in the land, and
  2. Not notify us and pay the surcharge rate of land tax for the trust land

If the trustee of a fixed trust elects to notify us of the beneficial interests in the land, this means:

  • The trustee will be liable for Victorian land tax at general land tax rates instead of surcharge rates,
  • Each notified beneficiary of the trust will be treated as if they own a percentage of the trust land which is equal to the percentage of their beneficial interest in the trust land,
  • The notified beneficiaries will be assessed on either the general or surcharge land tax rates, depending on whether the beneficiary owns their share of the land on an individual basis, as a corporation or in a trustee capacity,
  • Each notified beneficiary will be assessed on the total taxable value of their share of the trust land added to the value of any other taxable land that they own (other than exempt land) subject to a deduction for the proportional tax payable by the trustee,
  • If a beneficiary does not own other taxable land, the only assessment for the trust land will be issued directly to the trustee,
  • The notification of beneficial interests in land can only take effect from the tax year following the year in which the notice is lodged and cannot apply retrospectively.  The notification remains in force until it is withdrawn by the trustee,
  • If the notification is withdrawn, the trustee cannot subsequently lodge another notification

If a notification is in force and there are changes in the beneficial interests in the trust land, the trustee is required to notify us of such changes within one month of the change and failure to do so may result in the imposition of penalty tax.

Unit trusts

A unit trust is defined by s3 of the Act as an arrangement made for the purpose, or having the effect, of providing facilities for participation by a person, as a beneficiary under a trust, in any profit or income arising from the acquisition, holding, management or disposal of property under the trust, but does not include excluded trusts.

Beneficiaries of a unit trust are generally called unit holders.

A trustee of a unit trust has two options.

  1. Notify us of unitholders in the land, or
  2. Not notify us and pay the surcharge rate of land tax for the trust land

If the trustee of a unit trust notifies us of the unitholders of the trust, this means:

  • The trustee will be liable for Victorian land tax at general land tax rates instead of surcharge rates,
  • Each notified unitholder will be treated as if they own a percentage of the trust land which is equal to the number of units they hold as a fraction of the total number of units of the trust,
  • Notified unitholders will be assessed at either the general land tax rate or the surcharge rate depending on whether the units are held on an individual basis, as a corporation or in a trustee capacity,
  • Notified unitholders will be assessed on the aggregate taxable value of their proportionate share of the trust land and any other land they own (other than exempt land) subject to a deduction for the proportional tax payable by the trustee,
  • If a unitholder does not own other taxable land, the only assessment for the trust will be issued directly to the trustee,
  • If a unitholder owns other taxable land, they will be assessed at the general land tax rates on the aggregated value of their proportionate beneficial interest in the trust land (calculated by reference to their proportionate share of unit holdings in the trust) and any other land they own, less a deduction for the proportional tax payable by the trustee (to avoid double taxation),
  • The notification of unit holdings can only take effect from the tax year following the year in which the notice is lodged and cannot apply retrospectively. The notification remains in force until it is withdrawn by the trustee. If it is withdrawn, the trustee cannot subsequently lodge another notification

If there is a change in the unit holdings while a notification of unit holdings is in force, the trustee must notify us within one month of the change. Failure to do so may result in the imposition of penalty tax.

Implied or constructive trusts

A trustee of an implied or constructive trust will be separately assessed on trust land at the general land tax rates as if the trust land were the only land owned by the trustee and will not be subject to the surcharge rate.

Where the trustee holds land for more than one implied or constructive trusts which have the same beneficiary or beneficiaries, the trustee is to be assessed for land tax at general rates on the whole of the land subject to those implied or constructive trusts as if that land were the only land owned by the trustee (i.e. the land held by the trustees for the same beneficiaries are assessed for land tax on an aggregated landholdings basis).

Administration trust for deceased estates

A personal representative acting in the capacity of an executor or administrator of a deceased estate is essentially acting as trustee for the deceased estate. Even though deceased estates are trusts, special rules apply to these trusts to assess trust land at general land tax rates and not surcharge rates during the concessionary period. These forms of trusts can also be referred to as administration trusts.

The administration trust rules only apply if the deceased passed away on or after 12 December 2007. If the administration trust rules apply, land tax will be assessed at the general rate for land tax during the concessionary period. The concessionary period generally begins when the grant of representation for the deceased estate is made (i.e. generally when the assets of a deceased person are held by the personal representative on trust for the deceased estate) and ends on the earlier of the:

  • Completion of administration of the deceased estate, or
  • Third anniversary of the death of the deceased person or a further period approved by us

Within one month of the date of the appointment of the personal representative, we must be advised of the commencement of the administration of a deceased estate. Similarly, the SRO must be advised within one month of the completion of the administration of a deceased estate. Failure to make either of these notifications can result in a penalty tax liability.

More about deceased estates

Excluded trusts

A trustee of an excluded trust will be assessed on the trust land at the general land tax rates and will not be subject to the surcharge rate.

Beneficiaries of excluded trusts are not required to pay land tax on land held on trust for them. A trust may qualify as an excluded trust if it is a:

  • Charitable trust,
  • Concessional trust (i.e. a trust of which each beneficiary is a person with a disability within the meaning of the Disability Act 2006 or a person in respect of whom a guardianship order is in force under the Guardian and Administration Act 1986),
  • Public unit trust scheme (e.g. listed trust),
  • Wholesale unit trust scheme (registered under Division 7, Part 2, Chapter 3 of the Duties Act 2000),
  • Trust of which one or more of the beneficiaries is a club as referred to in s73 of the Duties Act 2000 or a member of such a club, or
  • Complying superannuation trust (including approved deposit fund and pooled superannuation trust)

In addition, an excluded trust includes a trust established by a will, where the deceased died on or after 1 January 1989 but before 12 December 2007. The trust is an excluded trust for the period ending on the later of:

  • The third anniversary of the deceased’s death or a further period approved by the Commissioner, or
  • If at the date of the deceased’s death, all the potential beneficiaries are minors, then the 18th birthday of the first beneficiary to turn 18

PPR nominations for discretionary or unit trusts

If land held by a trustee of a discretionary or unit trust is occupied by a beneficiary as their PPR, the trustee can make a PPR nomination. To be eligible, the nominated PPR beneficiary must use and occupy the land as their PPR for the relevant PPR period, and must not use it to conduct substantial business activity

Nominated land will be separately assessed, as though it were the only land owned by the trustee, at the general rates of land tax. The PPR beneficiary will not be assessed on nominated PPR land.

A trustee can nominate a PPR or subsequent PPR beneficiary of a discretionary or unit trust at any time. Prior to submitting the PPR nomination form, the trust must first notify us that the trust has acquired land. Nominations will be effective for the land tax year in which the nomination is lodged, provided the nominated PPR beneficiary has used and occupied the land as their PPR for the relevant PPR period. Each trust may only nominate one PPR beneficiary.

The relevant PPR period is:

  • From at least 1 July to 31 December of the year before the assessment year, or
  • If the trustee became the owner of the land after 1 July of the year before the assessment year, sometime in the year before the assessment year (i.e. by 31 December)

A trustee can nominate a PPR or subsequent PPR beneficiary of a discretionary or unit trust at any time. Prior to submitting the PPR nomination form, the trust must first notify us that the trust has acquired land.

Nominations will be effective for the land tax year in which the nomination is lodged. This is provided the nominated PPR beneficiary has used and occupied the land as their PPR for the relevant PPR period.  A nomination cannot apply retrospectively, even if the nominated PPR beneficiary used and occupied the land as their PPR in prior years.  

If the nominated PPR beneficiary dies, or ceases to use and occupy the land as their PPR, the trustee must lodge a written notice of this change within one month of the change taking place. If another beneficiary uses the land as their PPR, the trustee may nominate a subsequent PPR beneficiary.

The trustee of a unit trust may either notify us of the unitholders in the trust or nominate a PPR beneficiary, but not both.

Fixed trust beneficiary using trust land as their PPR

Unlike a discretionary trust or a unit trust, a fixed trust cannot nominate a PPR beneficiary.

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. That exemption is proportionate to the beneficiary’s beneficial interest in the trust land, provided the PPR exemption requirements are met.

More about PPR exemptions

Sub-trust beneficiaries of fixed or unit trusts

Where the beneficiary of a fixed or unit trust is a trustee of another trust (i.e. a sub-trust), the Act facilitates a “look through” to the ultimate beneficiaries, provided we have been notified of the beneficial interest/unit holders of the first trust (as defined below).

For instance, the effect of the look through provisions where the unit holder of a unit trust (first trust) is a trustee of a fixed trust (second trust) is, 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). A consequence of the notification is 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 also 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 second trust can avoid paying the surcharge rate if the trustee of the second trust also notifies the Commissioner of the beneficial interest of the second trust. The beneficiaries of the second trust will be regarded as the owner of the land and the ordinary rules relating to the taxation of notified beneficiaries will apply.

However, if the second trust is a discretionary trust then the surcharge rate will apply to the discretionary trust. The "look through" provisions only apply to fixed or unit trusts where we have been notified of the beneficial interest of the fixed or unit trust.

Summary

This table provides a general guide on land tax outcomes in respect of trusts.

Trust ownership details Land tax outcome

An excluded trust, administration trust, implied or constructive trust

Land is assessed at the general land tax rates

A discretionary trust acquired land on or before 31 December 2005 and the trustee has nominated a beneficiary within time

Land is assessed at the general land tax rates; and
The nominated beneficiary is:

  • Deemed to be the owner of the land (but not to the exclusion of the trustee),
  • Assessed if they own other taxable land

A discretionary trust acquired land on or before 31 December 2005 but the trustee has not nominated a beneficiary within time.

Land is assessed at the surcharge rate

A discretionary trust acquires land after 31 December 2005 and no PPR beneficiary is nominated

Land is assessed at the surcharge rate

Land is owned by a fixed trust and the trustee notifies the SRO of all beneficial interests in the land

Land is assessed at the general land tax rates;
Beneficiaries are:

  • Deemed to be the owner of the land (but not to the exclusion of the trustee),
  • Assessed if they own other taxable land

Land is owned by a fixed trust but the trustee does not notify the SRO of the beneficial interests in the land

Land is assessed at the surcharge rate

Land is owned by a unit trust and the trustee notifies the SRO of all the unitholders and the number of units held by each unitholder

Land is assessed at the general land tax rates; the unitholders are deemed to be the owner of the land (but not to the exclusion of the trustee); the unitholders are assessed if they own other taxable land

Land is owned by a unit trust but there has been no notification of the unitholders

Land is assessed at the surcharge rate

Land is owned by a trustee of discretionary or unit trust and is used as the PPR of a beneficiary or unitholder and the trustee nominates a PPR beneficiary

The PPR land is assessed as though it were the only land owned by the trust at the general land tax rates (provided a substantial business activity is not conducted on the land).

Any other land held under the trust is assessed at the surcharge rate, or the general land tax rate, as appropriate.

Land is owned by a fixed trust and is used as the PPR of a beneficiary

An exemption from land tax applies which is proportionate to that beneficiary’s beneficial interest in the land provided the PPR exemptions set out in the Land Tax Act 2005 are satisfied

Beneficiary of a fixed or unit trust (first trust) is a trustee of another trust (second trust) and the first trust has notified us of its beneficiaries

General rates will apply to the first trust.  The land tax rate that applies to the second trust will depend on the type of trust and whether the second trust has notified us of its beneficiaries