Skip to main content Go to home page

Trusts are legal arrangements where a person or company (the trustee) holds property and the legal title to that property for the benefit of someone else (the beneficiary or unit holder). The identity of the beneficiaries or unit holders and the extent of their interest depend on the wording of the trust document. There are many types of trusts, including discretionary trusts, fixed trusts, special disability trusts, unit trusts and superannuation funds.

Under the Duties Act 2000 (the Act), duty is payable on a dutiable transaction. Generally, this occurs when you buy property, such as your home or an investment property, and results in you having to pay duty on that purchase.

Duty is also payable when you acquire property or an interest in property without buying it, for example, through a lease, gift, declaration of trust or other transaction affecting a change in the beneficial ownership of property. When this happens, duty applies at the same rates as for the transfer of a property. 

Frequently asked questions

Duty treatment of trusts

Declarations of trust

A declaration of trust over dutiable property, such as land, attracts duty at the same rate as a land transfer. 

A declaration of trust that does not declare a trust over dutiable property, such as land, attracts duty of $200.

Exemptions for trusts

Under Chapter 2, Part 5 of the Act, there are exemptions from duty for certain transactions involving trusts, including:

  • property vested in an apparent purchaser
  • transfers to and from a trustee or nominee
  • property passing to:
    • beneficiaries of fixed or discretionary trusts
    • unitholders in a unit trust scheme
    • beneficiaries of a superannuation fund.

Broadly, it is important to remember that:

  • The purpose of the various trust exemptions under the Act is to provide an exemption for the transfer from a specific type of trust to the beneficiaries of that trust.
  • Each exemption section must be read as a whole.
  • A transferor trust and a transferee must satisfy all the conditions of a relevant exemption for it to apply. The trust exemptions are not intended to apply regardless of the nature of the trust and the transaction.

Hybrid trusts

A hybrid trust is not defined in the Act. It is a mix of two or more different types of trusts. Where duty applies to a transaction involving a hybrid trust, determining the nature of the trust for duty exemption purposes can be difficult. Each hybrid trust deed is considered on its own merits, but generally:

  • The terms of a hybrid trust deed as a whole determine its nature and whether it meets the specific requirements of any of the exemptions available for trusts under Chapter 2 of the Act.
  • The nature of the trust is based on all clauses of the trust deed, not just the clauses triggered to effect a particular transaction. Where a trust is a hybrid trust, the fact that, for example, the trust transfers dutiable property to a discretionary beneficiary rather than a unitholder does not on its own change the fundamental nature of the trust from being a trust to which a unit trust scheme relates.
  • The trust fund is likely to be a unit trust:
    • if the trustee holds the trust fund for the benefit of the beneficiaries and/or unit holders, and
    • it can distribute the income and/or capital of the trust to beneficiaries and/or unitholders in accordance with the proportionate interest held by the beneficiaries and/or unitholders.

Mirror or cloned trusts

A mirror trust is also not defined in the Act. Commonly, a mirror trust refers to a new trust where the beneficiaries are the same as another trust (the original trust) and the terms of both trusts have exactly the same meaning and effect.

Mirror trusts are also sometimes referred to as cloned trusts, with the terms used interchangeably.

A question may arise as to whether a transfer of dutiable property from an original trust to a new mirror trust is a dutiable transaction. A dutiable transaction is defined in s7 of the Act to include a transfer of dutiable property.

Irrespective of how the new trust is described or constituted, a transfer of dutiable property from an original trust to a new trust is a dutiable transaction unless a specific exemption applies to the particular facts. There is no specific exemption available in the Act for mirror trusts and generally, the cloning does cause a change in beneficial ownership.

Variation of a discretionary trust

Duty may apply to a variation of the terms and beneficiaries of a discretionary trust holding dutiable property.

Duty will apply to a variation that is so significant that it severs the continuity of the trust and results in a declaration of trust or a change in beneficial ownership of the dutiable property of the trust.

Whether a variation to a discretionary trust results in duty can only be determined on a case-by-case basis taking into account all facts and circumstances, the terms of the relevant discretionary trust deed, and the nature and extent of the variations.

Generally, the Commissioner considers that a dutiable transaction may arise where a variation to a discretionary trust has the effect of:

  • creating beneficial interests in persons in whom those interests did not exist previously
  • changing all the default beneficiaries/takers in default of that discretionary trust
  • significantly changing the interests of beneficiaries between themselves.

In these cases, duty at general rates would apply based on the value of the property held by the trust.

The Commissioner also accepts that certain variations will not give rise to a dutiable transaction, such as:

  • minor variation to the administrative provisions of a trust, such as the trustee’s power to operate bank accounts, borrow money, keep records and pay expenses
  • the addition or deletion of discretionary objects to and from a class of persons under a discretionary trust provided that the trustee of that trust has the pre-existing authority to do so under the terms of the trust.

Limited recourse borrowing arrangements

A limited recourse borrowing arrangement typically involves a self managed superannuation fund using its own funds, in addition to funds it has borrowed from a third party lender, to purchase property. The property is acquired on behalf of the superannuation fund by a custodian appointed by the superannuation fund to act on its behalf. There may be duty implications for these arrangements

Transactions resulting in a change in the beneficial ownership of land

Duty is also payable on a transaction resulting in a change in the beneficial ownership of dutiable property (other than a transaction involving units in a unit trust scheme). In this context, the expression ‘beneficial ownership’ has a wide meaning and extends beyond merely equitable ownership (see Woodfield Constructions v Commissioner of State Revenue (Taxation) [2005] VCAT 2518). 

For the purposes of the Act, beneficial ownership includes ownership of dutiable property by a person as trustee of a trust. It also includes the interest a person may have in a fixed trust or joint venture owning land in Victoria.

From 14 June 2018, the Act also deems a partner in a partnership to have beneficial ownership of each item of partnership property in the same proportion as their interest in the partnership. Therefore, transactions in partnership structures, such as a transfer of a partnership interest or the retirement of a partner resulting in the enlargement of the other partner’s interests in the partnership, will be dutiable where partnership property includes dutiable property.

More about changes in beneficial ownership

Last modified: 5 May 2023
Back to top