Deceased estates in general
A person may die testate (with a valid will) or intestate (without a valid will). In either case, before the estate can be administered the personal representative for the estate will generally have to apply to the Supreme Court of Victoria or other relevant authority for a grant of representation.
There are 2 types of grants of representation:
- Where an individual dies with a valid will, the personal representative is named in the will and the grant of representation is called a grant of probate.
- Where an individual dies without a valid will, the personal representative can be either the State Trustees or a family member and the grant of representation is called letters of administration.
Once a grant of representation has been made, the estate moves into a period of administration. During this time, the personal representative is the legal owner of all the land and property of the estate. It is their role to settle the liabilities and collect the assets of the deceased so they can be distributed in accordance with the terms of the will or rules of intestacy (set out in Part 1A of the Administration and Probate Act 1958) once administration has been completed.
Once the administration of the estate is completed, the personal representative becomes a trustee and holds the assets of the estate on trust for the beneficiaries.
The assets of an estate can be distributed:
- directly to the beneficiaries set out in the will or to the individuals listed in the Administration and Probate Act 1958, or
- to the trustee of a trust that is established within the terms of the will where the assets are to be held on trust for a beneficiary or beneficiaries (this is known as a testamentary trust).
Land tax on deceased estates
The Land Tax Act 2005 (the Act) has a specific regime for land held on trust, including land held by a personal representative. Generally, this regime imposes a surcharge rate of land tax, which is higher than the general rate of land tax, on trustees that hold land.
However, the surcharge rate does not apply to an estate during the period it is an administration trust. An estate held by a personal representative is considered an administration trust from the date of the person’s death until the end of a period, known as the concessionary period, which is the earlier of the:
- third anniversary of the date of death of the deceased, or further period approved by the Commissioner, or
- date of completion of administration of the deceased estate.
During the concessionary period, an estate will be taxable at general, rather than surcharge, rates of land tax. However, land owned and exempt from land tax as the deceased’s principal place of residence (PPR) will be treated differently to other land owned by the estate.
In exceptional circumstances, the Commissioner has the power to extend the period during which the land may be assessed at general rates beyond the concessionary period. If you believe that an extension of the concessionary period should be granted, you can write to us, stating your reasons and providing relevant supporting evidence.
If administration of the deceased estate is not completed within the concessionary period, the surcharge rate applies to the land.
It is important to seek professional advice in relation to land tax implications and the administration of estates.
Completion of administration
Administration of an estate is considered complete when any of the following occurs:
- The personal representative has completed all the duties of administering the estate except distribution to the heirs or beneficiaries.
- 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 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 the final accounts of the estate.
- 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.
This means the administration of an estate can be considered completed for land tax purposes before the assets are distributed to the beneficiaries.
If you are uncertain if administration of the deceased estate has been completed, you should seek legal advice.
Once the personal representative completes administration of the estate and distributes the relevant land, the new legal owner of the land is liable for any land tax.
Accordingly, if the land is:
- transferred to the beneficiary, or
- to a trustee of a testamentary trust, or
- sold to a third party,
the owner is liable for land tax if the land is subject to land tax.
If the personal representative completes administration but retains legal ownership of the land, they no longer own the land in the capacity of personal representative but as trustee. In this instance, the personal representative will be liable to pay land tax if the land is subject to land tax. As the land is held as trustee, the land tax trust regime rules apply and land tax may be payable at the surcharge rates. In some cases the trustee may be assessed at general rates by notifying us of the beneficiaries of the trust or nominating a PPR beneficiary.
If the personal representative is also the sole beneficiary of the estate they will own the land in their own right because a person cannot hold the land as trustee for themselves. This means that any taxable land will be assessed at general rather than surcharge rates of land tax.
Obligations of personal representatives/trustees
Under the land tax trust regime, a personal representative must notify us at the commencement and completion of administration of a deceased estate.
Commencement of administration
For land tax purposes, the personal representative commences their role on the date of appointment, which is the date of issue of the:
- grant of probate, or
- letters of administration.
Within one month of the appointment date, the personal representative must lodge:
- a commencement notice of their appointment (the commencement of administration) with us, and
- copies of the grant of probate and will, and
- a copy of the inventory of assets and liabilities, or
- the letters of administration and an inventory of all assets and liabilities.
This commencement notice enables the identification and verification of all the land held in a deceased estate to ensure the correct rate of land tax is assessed, if applicable. Failure to lodge a notice may render the personal representative liable for penalty tax.
Completion of administration
A personal representative must also lodge a completion notice with us within one month of the completion of the administration of a deceased estate. Failure to do so may render them liable for penalty tax.
Obligations under trust notification provisions
In addition to the requirements outlined above, the trustee of a trust, which may include a personal representative, established on or after 1 January 2010 is required to comply with the trust notification provisions under the general land tax trust regime rules.
Example
Kylie passed away in 2018. George and Hilda are the personal representatives of Kylie’s estate. At the time of her death, Kylie owned an investment property. Once George and Hilda received the grant of probate, they lodged a notice that the period of administration had commenced.
Kylie’s will established a testamentary trust which stipulated that the property is to be held on trust for her daughter, Sarah. The trustee of the testamentary trust is Kylie’s solicitor, Carl.
George and Hilda completed administration of the estate in 2019, at which time the property was transferred to Carl as trustee for Sarah. Within a month of the administration ending, George and Hilda also lodged a notice with us to advise us that the administration had ended.
At the time of transfer, Carl lodged a notification of trust landholding and, to avoid the surcharge, a notification of beneficial interests with us.
In this case, an administration trust is taken to have commenced in 2018 for land tax purposes. Accordingly, the 2019 assessment would be issued to George and Hilda in respect of the property at the general rate. The property was transferred to Carl as trustee in 2019, once administration was completed. As Carl has lodged a notification of beneficial interests with us, he is liable for land tax in respect of the property at the general rate from the 2020 land tax year, as set out in the trust regime. Sarah may have a land tax liability if she owns other taxable land.
Land tax and the deceased's PPR
If the deceased owned and occupied land as a PPR at the time of their death, the PPR exemption applying to that land continues from the date of the person’s death until the end of a period known as the PPR concessionary period. This is the earlier of the:
- third anniversary of the person’s death, or
- day on which the deceased’s interest in the land vests in the trustee of the testamentary trust or the beneficiary of the will.
The PPR concessionary period does not apply if the deceased had a right to reside or life interest in the land, or if the property is rented out.
In exceptional circumstances, we can extend the PPR concessionary period beyond the third anniversary of the deceased’s death. If you believe such an extension should be granted, you can write to us, stating your reasons and providing relevant supporting evidence.
If administration is not completed by the end of the PPR concessionary period or extended PPR concessionary period, the PPR exemption ceases and the land becomes taxable.
Example
Arthur and Zara are the personal representatives of Mia’s estate. Mia died in 2019 and at the time of her death owned 2 properties:
- Her family home, which was her PPR and therefore exempt from land tax.
- An investment property subject to land tax.
Arthur and Zara completed administration of the estate in 2020 at which point the properties were transferred out of the estate.
The administration trust concessionary period applies for assessing the investment property at the general rate of land tax for the 2020 land tax year.
