Often not understood by investors, the trusts laws vary by state with in Australia. This includes how land tax is assessed and applied. For example, a discretionary trust in NSW cannot access the land tax free threshold, but can in Queensland.
We take a look at some of trust definitions in NSW and how they are treated by the NSW OSR for land tax purposes.
For land tax purposes, trusts can be divided into six categories:
trusts created by a will
A special trust is a trust where the trustee is the only person who meets the definition of ‘owner’ for land tax purposes, and the beneficiaries are not considered to be owners.
If a trust does not meet one of the following trust definitions, it is a special trust.
Examples of special trusts include most family trusts, discretionary trusts, some unit trusts and some trusts created by a will.
The land tax threshold does not apply to special trusts, which are taxed at a flat rate of
1.6 per cent for amounts up to the premium land tax threshold and then at 2 per cent
The following trusts receive the land tax threshold:
A fixed trust is a trust where the beneficiaries are considered to be owners of the land at the taxing date of midnight 31 December.
This is because they are presently entitled to the income and capital of the trust and these entitlements cannot be varied by the trustee in any way. Fixed trusts include some unit trusts and bare trusts.
A superannuation trust is a complying superannuation fund, a complying approved
deposit fund or a pooled superannuation trust under Sections 42, 43 and 44 respectively
of the Commonwealth Superannuation Industry(Supervision) Act 1993.
A trust created by a will is entitled to the threshold. However, if the trust is a
testamentary discretionary trust, it will become a special trust 24 months after the
date of death of the testator, or such further period as approved by the Chief
A family unit trust is a trust that held land at midnight on 31 December 2005 with a
taxable value of $1,000,000 or less, the unit holders have fixed entitlement to income or
capital, and 95 per cent or more of the units were family owned. Certain criteria must be
met to continue to qualify as a family unit trust.
A concessional trust is a trust where the land in the trust is held for the benefit of a
person who is:
A special disability trust within the meaning of the Commonwealth Social Security Act 1991 is also taken to be a concessional trust.
A charitable trust, includes trusts created for the relief of poverty, advancement of
education or religion or for the benefit of the community.
A unit trust may be a fixed trust, a special trust or a family unit trust. To be a fixed trust,
certain criteria apply. If these criteria do not apply, the trustee may restructure the trust
deed to meet the criteria but the threshold will only apply from the next tax year.
Note: A beneficiary or unit holder in a fixed trust, a trust created by a will (other than a
special trust), a family unit trust or a concessional trust is an owner of their interest in the
trust and would need to take the value of their interest into account when a
liability to land tax is being considered.
Navigating trust laws, duty, land tax not to mention income tax and capital gains tax can be a challenging task. If you are unsure of your taxation obligations with regards to these areas and state trust laws, contact us at firstname.lastname@example.org