Land Tax and Trusts. Scott Leggo & Darrel M c Mahon Staff Development and Customer Education

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1 Land Tax and Trusts Scott Leggo & Darrel M c Mahon Staff Development and Customer Education

2 Housekeeping You can select Telephone or Mic & Speakers Use the raise hand function to indicate that you are receiving the audio Type any questions you have into the question pane

3 Your presenters Scott Leggo Customer Education Unit Darrel McMahon Customer Education Unit

4 Agenda Trusts and trust surcharge Sliding scale of land tax rates Trust types, characteristics and land tax treatment Exceptions to surcharge rates TRUST DEED Notifying the SRO Q&A

5 What is a trust? A trust is simply a device by which one person holds property for the benefit of another. The first person, called the trustee, owns some specific property, and is under equitable obligations to deal with that property for the benefit of the other, called the beneficiary. Trustee Property Beneficiary

6 Land Tax Act 2005 Trust provisions contained in Division 2A of Part 3 Central feature of the provisions is the trust surcharge Section 46A: o Imposes the surcharge on land held on trust o Trustee assessed separately for each trust o Provides for various exceptions to trust surcharge

7 Agenda Trusts and trust surcharge Sliding scale of land tax rates Trust types, characteristics and land tax treatment Exceptions to surcharge rates TRUST DEED Notifying the SRO Q&A

8 Sliding scale of rates General Land Tax Rates present Total taxable value of land holdings Land tax payable < $250,000 Nil $250,000 to < $600,000 $275 plus 0.2% of amount > $250,000 $600,000 to < $1,000,000 $975 plus 0.5% of amount > $600,000 $1,000,000 to < $1,800,000 $2,975 plus 0.8% of amount > $1,000,000 $1,800,000 to < $3,000,000 $9,375 plus 1.3% of amount > $1,800,000 $3,000,000 $24,975 plus 2.25% of amount > $3,000,000 Land Tax Rates for Trusts present Total taxable value of land holdings Land tax payable < $25,000 Nil $25,000 to < $250,000 $82 plus 0.375% of amount > $25,000 $250,000 to < $600,000 $926 plus 0.575% of amount > $250,000 $600,000 to < $1,000,000 $2,938 plus 0.875% of amount > $600,000 $1,000,000 to < $1,800,000 $6,438 plus 1.175% of amount > $1,000,000 $1,800,000 to < $3,000,000 $15,838 plus % of amount > $1,800,000 $3,000,000 $24,975 plus 2.25% of amount > $3,000,000

9 Agenda Trusts and trust surcharge Sliding scale of land tax rates Trust types, characteristics and land tax treatment Exceptions to surcharge rates TRUST DEED Notifying the SRO Q&A

10 Trust types Defined in Section 3 of the Act: 1) Fixed trust 2) Unit trust scheme 3) Discretionary trust 4) Administration trust 5) Excluded trusts

11 Fixed trusts The trustee has no discretion to vary beneficiaries or entitlements All beneficiaries are ascertainable and their beneficial interests are fixed The Act: a trust that is not an excluded trust, a discretionary trust or a trust to which a unit trust scheme relates.

12 Unit trusts Beneficiaries hold units Units are a right or interest in Investor 1 Investor 2 Investor 3 the trust Trustee has no discretion Unit Trust regarding entitlements Units can be held by trusts, individuals or companies Units can be bought and sold

13 Discretionary trusts Beneficiaries have no fixed entitlement or interest in the trust Trustee has discretion to determine who gets what and when, within terms of trust deed That is, which beneficiaries receive capital of the trust and how much each beneficiary receives e.g. Family trust

14 Excluded trusts (excluded from surcharge) Concessional trust Set up for persons with a guardianship order, administration order or a person with a disability Public unit trust scheme A publicly listed, or widely held trust Wholesale unit trust scheme As per Duties Act 2000 Superannuation trust A complying super fund as per ATO requirements

15 Excluded trusts Charitable trust Exclusively for charitable purposes of a public nature Four heads of charity (relief of poverty, advancement of education, advancement of religion, other purposes beneficial to the community) Trust for club or members Society, club or association Not for profit or gain of members Exclusively for social, cultural, recreational, literary or educational interests and/or horse and pony racing in Victoria

16 Administration trusts Deceased estate under administration Assets held by personal representative of the deceased Excluded from trust surcharge rates until earlier of: o Completion of administration of estate, or o 3 rd anniversary of death of the deceased If testator deceased prior to 12 December 2007 o 3 rd anniversary of death of the deceased (past), or o If all beneficiaries are minors, 18 th birthday of oldest

17 Agenda Trusts and trust surcharge Sliding scale of land tax rates Trust types, characteristics and land tax treatment Exceptions to surcharge rates TRUST DEED Notifying the SRO Q&A

18 Trust surcharge exceptions The land is child maintenance land (as per the ITAA) Held in trust as a result of family breakdown Trustee assessed at general rate on single holding basis

19 Trust surcharge exceptions Fixed trust beneficial interests Trustee lodges written notice of beneficial interests in trust land with SRO Trusts - Notification or change of beneficial interests/unit holdings in land form Trustee assessed at general rates Beneficiary assessed at general rates on aggregate of their interest in trust land and other taxable land they own, less deduction to avoid double taxation

20 Trust surcharge exceptions Unit trust unit holdings Trustee lodges written notice of unit holdings in trust land with SRO Trusts - Notification or change of beneficial interests/unit holdings in land form Trustee assessed at general rates Unit holder assessed at general rates on aggregate of their interest in trust land and other taxable land they own, less deduction to avoid double taxation

21 Trust surcharge Discretionary trust Trustees were required to lodge written notice of a nominated beneficiary with the SRO by the extended deadline of 30 September 2006 for land held prior to Land acquired by discretionary trusts after 31 December 2006 attracts the surcharge rate. There is no longer the opportunity to nominate a beneficiary.

22 Nomination of PPR beneficiary PPR - Principal Place of Residence Unit trust o Trustee may nominate unitholder to be PPR beneficiary o Must be natural person Discretionary trust o Trustee may nominate beneficiary to be PPR beneficiary o Must be natural person Fixed trusts get different treatment and may be PPR exempt under S 54

23 Nomination of PPR beneficiary Beneficiary uses and occupies trust land as their PPR for relevant PPR period: o At least 1 July to 31 December in year prior to assessment year o If trustee acquired that land after 1 July, then before 31 December of previous year No substantial business activity to be conducted on land PPR beneficiary not assessed on PPR land Trustee assessed at general rates on single holding basis

24 PPR beneficiary example Trust owns three properties $200,000 $400,000 PPR beneficiary $300,000 Total value $600,000 Land tax (rates for trusts): $2,938 Total value $300,000 Land tax (general rates): $275 Trustee s total land tax: $2,938 + $275 = $3,213

25 Nomination of PPR beneficiary How to nominate PPR beneficiary Trustee to lodge Trusts - Nomination of PPR/subsequent PPR beneficiary form with the SRO Nomination can be made at any time Nominations effective from land tax year in which form is lodged and continues until beneficiary deceased or ceases using land as PPR

26 Can the PPR of beneficiary be changed? Trustee may nominate new PPR beneficiary if previous one deceased or stops using land as PPR Commissioner approval required Must advise SRO in writing within 1 month of change Trustee of unit trust may notify SRO of either nominated PPR beneficiary or unitholders in the trust, but not both

27 Agenda Trusts and trust surcharge Sliding scale of land tax rates Trust types, characteristics and land tax treatment Exceptions to surcharge rates TRUST DEED Notifying the SRO Q&A

28 Notification requirements All Victorian lands held on trust Acquisition of new Victorian lands to be held on trust o within 1 month of acquisition o Notice of trust acquisition of an interest in land form Personal representative of an administration trust o within 1 month of completion of administration o Deceased estate - Completion of administration form

29 Notification requirements In writing within one month if: Change in trust type Fixed trust - change in beneficial interest(s), where notification of beneficial interest in force Unit trust - change of unitholdings, where notification of unitholdings in the trust in force Nominated PPR beneficiary ceases using trust land as PPR

30 Late notifications If a trustee fails to make timely notification of above events, the trustee may be liable for penalty tax. Penalty tax is calculated on the additional amount of tax the trustee would have paid had the notification been made in time.

31 Agenda Trusts and trust surcharge Sliding scale of land tax rates Trust types, characteristics and land tax treatment Exceptions to surcharge rates TRUST DEED Notifying the SRO Q&A

32 Q&A Any questions?