Absentee discretionary trusts
If you are an absentee owner, an absentee owner surcharge applies to the taxable Victorian land you own. This surcharge is 1.5 per cent from 1 January 2017 (previously 0.5 per cent). The surcharge will be 2 per cent from 1 January 2020 onwards.
The surcharge is an additional amount that applies over the land tax you pay at general and trust surcharge rates.
If you are a trustee of an absentee discretionary trust that owns taxable land, you should tell us as soon as possible via our Absentee Owner Notification Portal. This is important because penalties may apply if you don’t tell us.
A discretionary trust is an absentee trust if it has at least one specified beneficiary who is an absentee person. A specified beneficiary is a beneficiary who may receive income or property from the trust and is specifically named in the trust deed that establishes the discretionary trust. A discretionary trust is also an absentee discretionary trust if a specified beneficiary of that trust is acting as trustee of an absentee trust.
A specified beneficiary is not the same as a taker in default. However, it could be the same person. A taker in default is usually identified in the trust deed in the taker in default clause. A taker in default will take any trust capital that has not been allocated to a beneficiary when the trust is terminated.
Land tax implications
The amount of land tax payable on land held under a discretionary trust depends on a number of factors, including whether the trust land was acquired before 2006 and whether there is a nominated beneficiary.
If the trust land was acquired before 2006 and the trustee had nominated a beneficiary by the due date, the trustee is assessed at the general tax rates and the nominated beneficiary is deemed to be the owner of the pre-2006 trust land (in addition to the trustee).
Alternatively, if a principal place of residency (PPR) beneficiary nomination is in force, the trustee is assessed at the general rates of land tax on the land used and occupied by the PPR beneficiary. In any other case, the trustee is assessed at the trust surcharge rates of land tax.
Note: The nominated beneficiary of a discretionary trust may be a specified beneficiary. To determine whether a discretionary trust is an absentee trust, the focus is on the status of the specified beneficiaries, not the nominated beneficiary.
Foxtrot Pty Ltd is trustee of the Foxtrot Family Trust, which is a discretionary trust, and it owns taxable land in Victoria. The land was acquired in 2004.
The specified beneficiaries of the trust are Frank and Felicity. The class of general beneficiaries include the parents, children, brothers and sisters of the specified beneficiaries.
To avoid paying the trust surcharge, Foxtrot Pty Ltd had nominated Fay (Frank’s child) as the nominated beneficiary within the relevant time frame. Fay is deemed to own the trust land (in addition to Foxtrot Pty Ltd).
To determine whether or not the Foxtrot Family Trust is an absentee trust, the status of Frank and Felicity is relevant. The status of Fay is not relevant because she is not a specified beneficiary.
Trustee has not nominated a beneficiary
Where there is no nominated beneficiary, the trustee of an absentee discretionary trust will be liable for land tax at the land tax surcharge rates for absentee trusts.
Zulu Pty Ltd is trustee of the Zulu Family Trust, which is a discretionary trust that owns taxable land in Victoria. The land was acquired in 2012 and therefore Zulu Pty Ltd is not able to nominate a beneficiary. Therefore, the trust land will be liable to the trust surcharge rate of land tax.
The specified beneficiaries of the trust are Zane and Zoe. Zoe is an absentee individual and therefore the Zulu Family Trust is an absentee trust. The trust land will also be liable to the absentee owner surcharge.
The taxable value of the land held under the Zulu Family Trust is $600,000. The land tax payable by Zulu Pty Ltd is assessed at the surcharge rates of land tax for absentee trusts.
Trustee has nominated a beneficiary
If the trust land was acquired before 2006, the trustee could have nominated a beneficiary for land tax purposes by the relevant date. If a trustee had made a nomination of a beneficiary, the trustee is assessed at the general land tax rates.
The nominated beneficiary is deemed to be the owner of the trust land (in addition to the trustee) and is separately assessed on that land plus any other land they may own. To avoid double taxation, the nominated beneficiary is entitled to a deduction for the land tax paid by the trust.
Using the details in example 2 above, except that the land was acquired in 2005 and Zulu Pty Ltd has correctly nominated a beneficiary. The trustee will be assessed at the general absentee owner surcharge rates of tax on the pre-2006 land.
The nominated beneficiary will also be assessed on the trust land less a deduction to avoid double taxation. If the nominated beneficiary is an absentee person, they will be assessed at the general absentee owner surcharge rates of tax. If the nominated beneficiary is not an absentee person, they will be assessed at the general rates of tax.
If the nominated beneficiary does not own any other land (including as deemed owner), they will not be liable to any tax because the deduction will offset the tax payable.
If you are an absentee owner at 31 December, you must tell us before 15 January of the following year using our Absentee Owner Notification Portal.
Once you have notified us that you are an absentee owner, your land tax assessments will include the absentee owner surcharge. We assume that your absentee owner status is current until you tell us otherwise.
Failing to tell us you are an absentee owner is a notification default under the Taxation Administration Act 1997. When this happens, you are liable for penalty tax on the surcharge amount assessed in accordance with our Revenue Ruling on penalty tax and interest. This may be penalty tax of:
- 5 per cent if you voluntarily tell us that you are an absentee owner before we start investigating you,
- 20 per cent if you tell us you are an absentee owner after we start an investigation, and
- up to 90 per cent if we believe that you intentionally disregarded the law and hindered our investigation
Changes to your absentee owner status
If you are an absentee owner at 31 December, you must tell us before 15 January of the year after, using our Absentee Owner Notification Portal. If you cannot access the portal, call us on 13 21 61.