Land tax provisions impose a higher rate of land tax on land held in various trusts. The Government’s tax agency, State Revenue Office administers and collects this progressive land tax. The higher impost is 0.375% over the ordinary rate of land tax; and on land holdings over $20,000, instead of the normal $200,000 threshold.
The laws exempt some trusts, such as charitable trusts, complying superannuation funds, trusts for disabled persons and public unit trusts. Currently exempt land, such as primary production land, remains exempt.
However, the Government has decided to limit the exemption on testamentary trusts, for example property held by trustees under an estate for children until they reach a certain age, have a three year period before being subject to the higher rate of tax. It seems the Government has not properly considered the adverse effects of imposing such a tax on these estate trusts.
BE CAREFUL OF THE BLACK WIDOW SPIDER
Do not fall into this trap until you obtain legal advice!
These changes affect all land acquired by any trust or estate before December 31, 2005 and trustees need to consider whether it is appropriate to seek relief under the nomination provisions of these new laws that impose the lower rate of tax if the trust actually gives notice of which beneficiary in the trust is the owner of the land. This nomination means that State Revenue Office will assess the rate of land tax on the individual rate rather than the higher trust rate.
Nominating an individual under a trust can adversely affect the primary purpose of a trust set up as part of an asset protection program especially with discretionary trusts and will impact on estate planning programs. Unit or fixed trusts usually identify beneficiaries with pre-determined holdings, which may result in lower land tax duty for both pre and post 31 December 2005 and may not have the same adverse impact.
NEW COMPLIANCE REQUIREMENTS
All trusts (regardless of land holdings) and including estate trusts, had to lodge a return with State Revenue Office by March 31 giving details of land holdings, and
Trustees of discretionary trusts seeking relief of the higher land tax had to nominate the owner beneficiary by June 30, 2006, and
Trustees of unit or fixed trusts and fixed trusts had to lodge notices of unit holders or beneficiaries by June 30, 2006 disclosing land held before December 31, 2005.
URGENT REVIEW NECESSARY
Trustees need to review their legal position before electing to nominate a beneficiary as owner, whether to pay the higher rate of land tax. The new compliance requirements impose additional legal obligations on the trustee who must actdiligently and reasonably at all times under the trust.
It is therefore critical that we meet and carry out a thorough review of your personal and business structuring having regard to asset protection, estate planning, and taxation before you can make a decision as to the best course to adopt under the new laws.
NEED MORE INFORMATION
Behan Legal assists and advises on these important issues. For more information call 03 9646 0344