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Absentee discretionary trusts
The surcharge can apply to absentee discretionary trusts.
Key information
If you are an absentee owner, an absentee owner surcharge applies to your land tax.
An absentee owner includes an absentee discretionary trust.
A discretionary trust is an absentee trust if:
- it has at least one specified beneficiary who is an absentee person
- a specified beneficiary of that trust is acting as trustee of an absentee trust.
Specified beneficiary
A specified beneficiary is a beneficiary who:
- is specifically named in the trust deed that establishes the discretionary trust
- may receive income or property from the trust.
A specified beneficiary is not the same as a taker in default. However, it could be the same person.
A taker in default is usually identified in the taker-in-default clause of the trust deed. A taker in default will take any trust capital that has not been allocated to a beneficiary when the trust is terminated.
Land tax rules for absentee discretionary trusts
The amount of land tax payable by a trustee of an absentee discretionary trust depends on whether:
- the trust land was acquired before 2006
- there is a nominated beneficiary in place
- there is a nominated principal place of residence (PPR) beneficiary in place.
The nominated beneficiary of a discretionary trust may or may not be a specified beneficiary.
To work out whether a discretionary trust is an absentee trust, look at the status of the specified beneficiaries, not the nominated beneficiary.
Example 1
Foxtrot Pty Ltd is trustee of the Foxtrot Family Trust, which is a discretionary trust that owns taxable land in Victoria. The land was acquired in 2004.
The specified beneficiaries of the trust are Frank and Felicity. The class of general beneficiaries include the parents, children, brothers and sisters of the specified beneficiaries.
Foxtrot Pty Ltd had nominated Fay (Frank’s child) as the nominated beneficiary within the relevant time frame. Fay is deemed to own the trust land (in addition to Foxtrot Pty Ltd).
To work out whether the Foxtrot Family Trust is an absentee trust, look at the status of Frank and Felicity. Fay's status is not relevant because she is not a specified beneficiary.
Trustee has not nominated a beneficiary
If there is no nominated beneficiary, the trustee of an absentee discretionary trust is liable for land tax at the surcharge rates.
Example 2
Zulu Pty Ltd is trustee of the Zulu Family Trust, which is a discretionary trust that owns taxable land in Victoria. The land was acquired in 2012, so Zulu Pty Ltd cannot nominate a beneficiary and will be subject to the trust surcharge rate of land tax.
The specified beneficiaries of the trust are Zane and Zoe. Zoe is an absentee individual and therefore the Zulu Family Trust is an absentee trust. The trust land will also be liable for the absentee owner surcharge.
Trustee has nominated a beneficiary
If the trust land was acquired before 2006, the trustee could have nominated a beneficiary for land tax purposes by the relevant date.
If a trustee had made a nomination of a beneficiary, the trustee is assessed at the general absentee owner surcharge rates.
The nominated beneficiary is deemed to be the owner of the trust land (in addition to the trustee) and is separately assessed on that land plus any other land they own.
To avoid double taxation, the nominated beneficiary is entitled to a deduction for the land tax paid by the trust.
Example 3
Use the details in example 2 above, except that the land was acquired in 2005 and Zulu Pty Ltd has correctly nominated a beneficiary. The trustee will be assessed at the general absentee owner surcharge rates of tax on the pre-2006 land.
if the nominated beneficiary will also be assessed on the trust land minus a deduction to avoid double taxation. If the nominated beneficiary is an absentee person, they will be assessed at the general absentee owner surcharge rates of tax. If the nominated beneficiary is not an absentee person, they will be assessed at the general rates of tax.
If the nominated beneficiary does not own any other land (including as deemed owner), they will not be liable to any tax because the deduction will offset the tax payable.
Trustee with nominated beneficiary and holds both pre- and post-2006 lands
A trustee of an absentee discretionary trust with a beneficial nomination in force that holds both pre- and post-2006 lands is assessed at the absentee general and absentee surcharge rates for each of those lands respectively in proportion to its total taxable landholdings.
Tax is calculated using this formula:
L = [(R1 × T) × (A ÷ T)] + [(R2 × T) × (B ÷ T)]
Where:
- L is the land tax assessed for the trustee
- R1 is the applicable rate of land tax under the general rates with absentee owner surcharge
- R2 is the applicable rate of land tax under the trust surcharge rates with absentee owner surcharge
- T is the total taxable value of all taxable land subject to the trust
- A is the total taxable value of the pre-2006 land subject to the trust
- B is the total taxable value of the post-2006 land subject to the trust.
Example 4
Use Example 1 above, where Foxtrot Pty Ltd has a beneficial nomination in force and the taxable value of its pre-2006 land acquired in 2004 is $1.2 million.
Foxtrot Pty Ltd acquires more land as trustee of the Foxtrot Family Trust in 2023. The taxable value of the new land is $1.3 million.
Foxtrot Pty Ltd will be assessed as trustee in the 2024 tax year as follows:
[($83,850 + (5.65% × ($2,500,000 - $1,800,000)) × ($1,200,000 ÷ $2,500,000)] + [($90,363 + (5.1072 × ($2,500,000 - $1,800,000)) × ($1,300,000 ÷ $2,500,000)]
[($83,850 + $39,550) × 0.48] + [($90,363 + $35,750.40) × 0.52]
$59,232 + $65,578.97
$124,810.97
Trustee has nominated a PPR beneficiary
If a PPR beneficiary nomination is in force, the trustee is assessed at the general absentee owner surcharge rates of land tax on the land used and occupied by the PPR beneficiary.
The trustee is assessed at the trust surcharge rate with absentee owner surcharge on all the other trust land.
From the 2024 to 2033 tax years, a COVID-19 debt temporary surcharge applies to the land tax payable by the trustee where a PPR beneficiary nomination is in force.
Notify us
If you are the trustee of an absentee discretionary trust that owns taxable land on 31 December, you must notify us by 15 January of the following year.
You can also tell us about any change to your absentee owner status by updating your details in our absentee owner notification portal.