Deceased estates and land tax
A person may die testate (with a valid will) or intestate (without a valid will). In either case, before an estate can be administered the personal representative for the estate will generally have to apply to the Supreme Court of Victoria or other relevant authority for a grant of representation.
Where an individual dies with a valid will, the personal representative is named in the will and the grant of representation is called a grant of probate.
Where an individual dies without a valid will, the personal representative can be either the State Trustees or a family member and the grant of representation is called letters of administration.
Once a grant of representation has been provided, the estate moves into an administration period. During this time, the personal representative is the legal owner of all the land and property of the estate. It is their role to settle the liabilities of the deceased and collect the assets of the deceased so they can be distributed in accordance with the terms of the will or rules of intestacy (set out in Division 6 of Part 1 of the Administration and Probate Act 1958) once administration has been completed.
The assets can be distributed:
- Directly to the beneficiaries set out in the will or individuals listed in the Administration and Probate Act 1958.
- To the trustee of a trust that is established within the terms of the will where the assets are to be held on trust for a beneficiary/beneficiaries (this is known as a testamentary trust).
Land tax during the administration period
While the deceased estate is being administered, land is held by the personal representative on trust for the benefit of the beneficiaries of the will or trustee of the testamentary trust.
As such, any taxable land held by a personal representative falls within the land tax trust regime and should be assessed at the surcharge rate. This is because the Land Tax Act 2005 (the Act) establishes a specific regime within which land held on trust is assessed for land tax.
Generally, this regime imposes a surcharge rate of land tax, higher than the general rate of land tax, on trustees that hold taxable land unless certain notifications or nominations are lodged within prescribed timeframes.
The Act, however, provides that land tax is not assessed at the surcharge rate for a specific period of time (the concessionary period) to allow the personal representative to complete administration of the deceased estate.
If administration of the deceased estate is not completed within the concessionary period, the surcharge rate is applied to the land.
During the concessionary period, land used and occupied as the deceased’s principal place of residence (PPR) will be treated differently to other (taxable) land owned by the deceased at the time of death.
For land tax purposes, the relationship existing between the personal representative and beneficiaries of the will during the concessionary period is known as an administration trust. The personal representative of the deceased estate is trustee of an administration trust.
The rules relating to administration trusts for land tax purposes can only apply to deceased estates where the deceased died on or after 12 December 2007. If the administration trust provisions apply, land tax will be assessed at the general rate for land tax during the concessionary period. If administration is not completed by the end of the concessionary period, the taxable land will be assessed at the surcharge rate.
The concessionary period generally starts when the grant of representation is made (that is, when the assets of a deceased person are held by the personal representative) and ends at the earlier of the:
- Third anniversary of the date of death of the deceased or further period approved by the Commissioner, or
- Date of completion of administration of the deceased estate.
In exceptional circumstances, the Commissioner has the power to extend the period for which the land may be assessed at the general rate beyond the concessionary period. If you believe that an extension of the concessionary period should be granted, please state your reasons in a letter and, together with any relevant supporting evidence, send it to us.
During this concessionary period, land used and occupied as the deceased’s PPR is treated differently to other taxable land owned by the deceased at the time of their death.
Land tax and the deceased's PPR
If the deceased owned and occupied land as a PPR at the time of their death, the PPR exemption applying to that land continues from the date of the person’s death until the end of a period known as the PPR concessionary period. This is the earlier of the:
- Third anniversary of the person’s death, or
- Day on which the deceased’s interest in the land vests in the trustee of the testamentary trust or the beneficiary of the will.
In exceptional circumstances, we can extend the PPR concessionary period so that the PPR exemption continues beyond the third anniversary of the deceased’s death. If you believe such an extension should be granted, you can write to us, stating your reasons and providing relevant supporting evidence.
If administration is not completed by the end of the PPR concessionary period or extended PPR concessionary period, the PPR exemption stops applying and the land becomes taxable.
Note: The PPR concessionary period is not applicable if the property is rented out.
Arthur and Zara are the personal representatives of Mia’s estate. Mia died in 2011 and at the time of her death she owned two properties:
- Her family home, which was her PPR and therefore exempt from land tax,
- An investment property subject to land tax.
Arthur and Zara completed administration of the estate in 2012 at which point the properties were transferred out of the estate.
The PPR concessionary period applies for the 2012 land tax year to exempt Mia’s former PPR. Also, the concessionary period applies for assessing the investment property at the general rate of land tax.
If the date of death of the deceased was before 12 December 2007, the deceased estate is an excluded trust for the period ending the later of:
- The third anniversary of the testator’s death or further period approved by the Commissioner, or
- If at the testator’s death, all the potential beneficiaries are minors, the 18th birthday of the first beneficiary to turn 18.
During that period, a trustee of an excluded trust will be assessed at the general land tax rates and will not be subject to the surcharge rate on the trust land. Also, beneficiaries of excluded trusts will not pay land tax on land held on trust for them.
Completion of administration
Once the personal representative completes administration of the estate and distributes the relevant land, the new legal owner of the land is liable for any land tax.
Accordingly, if the land is:
- transferred to the beneficiary, or
- to a trustee of a testamentary trust,
- or sold to a third party,
the owner is liable for land tax if the land is subject to land tax.
If the personal representative completes administration but retains legal ownership of the land, they no longer own the land in the capacity of personal representative. In this instance, the personal representative becomes the legal owner and will be liable to pay land tax if the land is subject to land tax.
If the land is still held by the personal representative in a trustee capacity after administration of the estate is completed, the land tax trust regime rules apply and land tax may be payable at the surcharge rates.
Under the land tax trust regime, a personal representative must notify us at the commencement and completion of administration of a deceased estate.
Commencement of administration
For land tax purposes, the personal representative commences his/her role on the date of appointment. This appointment date is the date of issue of the:
- grant of probate, or
- letters of administration.
Within one month of the appointment date, the personal representative must lodge:
- a commencement notice of their appointment (the commencement of administration) with us, and
- copies of the grant of probate and will, and
- an inventory of all assets and liabilities, or
- the letters of administration and an inventory of all assets and liabilities.
This commencement notice enables the identification and verification of all the land held in a deceased estate to ensure the correct rate of land tax is assessed, if applicable. Failure to lodge a notice may render the personal representative liable for penalty tax.
Completion of administration
A personal representative must also lodge a completion notice with us within one month of the completion of the administration of a deceased estate. Failure to do so may render them liable for penalty tax.
Administration is considered complete when:
- The personal representative first assents to the transfer of an estate land to an heir, beneficiary or person entitled under the will, such as a trustee.
- The personal representative has completed all the duties of administering the estate except distribution to the heirs or beneficiaries.
- The personal representative has completed the final accounts of the estate.
- The personal representative has made an interim distribution of any part of the estate to the heirs or beneficiaries, and indicated that the estate has sufficient funds to discharge all debts and cover all expenses.
- The personal representative has commenced holding any estate land for a testamentary trust.
- An estate land is transferred to the person entitled to it under the will or testamentary instrument or to an heir of an intestate estate.
If you are uncertain if administration of the deceased estate has been completed, you should seek legal advice.
Obligations under trust notification provisions
In addition to the requirements outlined above, the trustee of a trust, which may include a personal representative, established on or after 1 January 2010 is required to comply with the trust notification provisions under the general land tax trust regime rules.
Kylie passed away in 2013. George and Hilda are the personal representatives of Kylie’s estate. At the time of her death, Kylie owned an investment property. Once George and Hilda received the grant of probate, they lodged a notice that the period of administration had commenced.
Kylie’s will established a testamentary trust which stipulated that the property is to be held on trust for her daughter, Sarah. The trustee of the testamentary trust is Kylie’s solicitor, Carl.
George and Hilda completed administration of the estate in 2014, at which time the property was transferred to Carl as trustee for Sarah. Within a month of the administration ending, George and Hilda also lodged a notice with us to advise us that the administration had ended.
At the time of transfer, Carl lodged a notification of trust landholding and, to avoid the surcharge, a notification of beneficial interests with us.
In this case, an administration trust is taken to have commenced in 2013 for land tax purposes. Accordingly, the 2014 assessment would be issued to George and Hilda in respect of the property at the general rate. The property was transferred to Carl as trustee in 2014, once administration was completed. As Carl has lodged a notification of beneficial interest with us, he is liable for land tax in respect of the property at the general rate from the 2015 land tax year, as set out in the trust regime. Sarah may have a land tax liability if she owns other taxable land.