LSB September 2019_Web

PROPERTY LAW
DISCRETIONARY
TRUSTS
VICTORIA NEW SOUTH WALES SOUTH AUSTRALIA
HOW IS THE TRUSTEE
OF A DISCRETIONARY
TRUST ASSESSED?
• Trustees of discretionary trusts are subject to
higher rates of land tax, being the surcharge rate.
• As per Victoria. • Likely to be same as VIC and
NSW.
CAN THE HIGHER
SURCHARGE RATE BE
REDUCED TO A GENERAL
RATE IF A NOMINATED
BENEFICIARY IS
IDENTIFIED FOR THE
TRUST?
• At the time of introducing the land tax reforms
(1 July 2005), trustees of discretionary trusts
were afforded a period of 6 months to nominate
a specified beneficiary for land held by the trust.
• Where so nominated, the trustee is assessed at
general rates only.
• That nominated beneficiary is deemed to be the
owner of the land, and that trust land is added
to the beneficiary’s other land holdings for a
grouped assessment.
• There is no scope to nominate
a beneficiary as recipient of
the land tax assessment for
discretionary trusts in NSW.
• All discretionary trusts in NSW
will be assessed at the surcharge
rates.
• It is unknown but likely that
S.A legislation will afford
discretionary trusts a similar
period to VIC to nominate a
beneficiary and avoid surcharge
rates.
IS THE NOMINATED
BENEFICIARY
ENTITLED TO A
REDUCTION?
WHAT ABOUT
FUTURE LAND
ACQUIRED BY A
TRUST (NEW OR
EXISTING)?
• To avoid double taxation, the nominated
beneficiary may qualify for a reduction of their
land tax liability to the extent land tax is paid by
the trustee of the trust.
• However, if the beneficiary’s land tax assessment
is greater than the portion paid by the trustee, the
beneficiary will remain liable to pay the balance.
• Any land acquired by a trust after the 6-month
period (1 January 2006) cannot nominate a
beneficiary and will be subject to surcharge duty.
• This includes land acquired after 1 January 2006
by a trust which has a nominated beneficiary
prior to 1 January 2006.
• Commissioner may permit a beneficiary
nominated after 1 January 2006 if such
nomination replaces a prior beneficiary who has
either died or otherwise revoked their nomination.
The Commissioner has discretion to determine if
a subsequent nomination is just and reasonable.
• N/A. • S.A likely to match that of VIC.
• Surcharge rates apply. • S.A likely to match that of VIC.
LAND TAX RATES VICTORIA NEW SOUTH WALES SOUTH AUSTRALIA
WHAT IS THE TOP
MARGINAL LAND TAX
RATE?
• 2.25% plus a fixed charge of $24,975, being for
land holdings above $3,000,000.
• 2%, being for land holdings
above $3,846,000.
• 3.7% (at present), being for land
holdings above $5,000,000.
• Note: It is proposed that top
marginal rate may reduce by
0.1% annually from FY2021
onwards until it reaches 2.9%
from 1 July 2027.
WHAT IS THE
SURCHARGE RATE
PAYABLE FOR CERTAIN
TRUSTS?
• Trusts pay the general rate applicable for their
land holding, PLUS a surcharge rate.
• The surcharge rate is a higher fixed charge plus an
additional 0.375% up to $1.8m.
• The surcharge begins to phase out from $1.8m,
and from $3m it is the same as the general rate
(which is a fixed charge plus 2.15%).
• It is simply a 1.6% flat rate up to
the premium land tax threshold
of $3,846,000.
• 2% for land value thereafter.
• It is difficult to predict whether
they will propose a flat surcharge
rate (as per NSW) or an
additional surcharge rate above
the general rate (as per VIC).
COMPARISON OF
ANNUAL LAND TAX
PAYABLE, BASED ON
A COMBINED LAND
HOLDING OF SAY
$5,000,000.
• $69,975 (noting at this level land tax is same
regardless if trust or otherwise).
• $72,104 (assuming no surcharge).
• $84,616 (assuming surcharge for
trusts).
• $150,070 (based on current rates
and excluding surcharge rates).
• Note: land tax rates for holdings
valued $1.3m to $5m will reduce
from 3.7% to 2.9% from 1 July
2020. Estimate of land tax
payable will drop to $120,544
(again excluding surcharge rates).
28 THE BULLETIN September 2019