In this edition of It depends, senior associate Keeghan Silcock discusses whether your trust can access the land tax exemption.
Video Transcript
Hi, my name is Keeghan Silcock and welcome to another edition of It depends. Today, I'll be talking about whether your trust can access the land tax exemption.
How do I know if my trust can access the land trust exemption?
So, it depends. There are different rules that apply in every different jurisdiction unfortunately across Australia, because land tax is state based, it's not federally legislated. And today, I'll be focusing on Queensland and New South Wales. In Queensland, trusts can generally access the land tax threshold or a reduced land tax threshold of $350,000, compared to the individual land tax threshold of $600,000. So, a trust can access the threshold, but it will be paying tax on unimproved value of the land above that $350,000 threshold. There are also some aggregation rules which can apply, where a trustee is acting as trustee of multiple trusts, which could potentially mean that those trusts are grouped together for land tax purposes. This typically applies where the beneficiaries of the two trusts that have the same trustee are the same, and for discretionary trusts, there are special rules to determine who are the beneficiaries in a particular year. And that's basically based on who receives the income and capital distributions in the year, or if there are none, who are the default beneficiaries of those trusts. So, it's important to be aware of that to make sure that if you have a common trustee across multiple trusts, that the trusts are able to separately access the land tax threshold where possible. It may be possible for a main residence, which is held in a trust to access the main residence land tax exemption in a year, provided special requirements are satisfied. In New South Wales, the rules are entirely different from Queensland. Trusts will only be able to access the land tax threshold in New South Wales if it qualifies as a fixed trust, and a trust will only be a fixed trust if all of the beneficiaries of the trust have a fixed entitlement to income and capital. The trust deed also needs to contain special wording prescribed by the legislation, so not all trusts which you might consider to be fixed trust. For example, a fixed unit trust will automatically qualify as a fixed trust for land tax purposes in New South Wales. Discretionary trusts cannot qualify for the land tax threshold in New South Wales because of the discretionary nature in which income and capital distributions can be made. So, what that means is that discretionary trusts will be assessed for land tax in New South Wales, based on 100% of the unimproved value of the land, without access to the threshold. Which can obviously significantly increase the land tax liability for that trust any land that it owns a year on year on year. So, that's a very important consideration to take into account when giving advice to clients about what structure to use for land tax purposes in New South Wales. If you do qualify, if your trust does qualify as a fixed trust in New South Wales, it will access the general land tax exemption that is also available to individuals so that there's no difference there for fixed trusts, which is currently $1,075,000. However, what will ultimately happen is that the beneficiaries of that fixed trust will be assessed on the land tax, will be assessed for land tax based on their share of that interest in the trust. So, where you have discretionary trusts, for example, as the beneficiaries, that might mean that ultimately you aren't receiving the land tax threshold for the land held in that fixed trust. So, it's very complicated in New South Wales, it's really important that you seek advice. On top of all of this is, considering what foreign surcharge rules apply in a particular jurisdiction, because that can increase the land tax liability, particularly for discretionary trusts. Those rules are really complex when it comes to trusts. So, we recommend that you seek advice before acquiring the assets or the land in a trust, to make sure that you're comfortable with how the land tax regime will operate in that particular jurisdiction. And if you need advice, please feel free to talk to a member of our team.
Cooper Grace Ward is a leading Australian law firm based in Brisbane.
This publication is for information only and is not legal advice. You should obtain advice that is specific to your circumstances and not rely on this publication as legal advice. If there are any issues you would like us to advise you on arising from this publication, please contact Cooper Grace Ward Lawyers.
