Duty and trusts

Key information

A trust is a legal arrangement where one person, called a trustee, holds property for someone else, called a beneficiary. The trustee is the legal owner, but the beneficiary is the one who benefits.

Duty may apply to certain dutiable transactions and acquisitions involving trusts that hold dutiable property, such as land. These include:

• a transfer of dutiable property to a trustee 
• a declaration of trust over dutiable property
• a change in beneficial ownership of dutiable property held under a trust 
• a relevant acquisition in a unit trust scheme that is a landholder
• a transfer of dutiable property from a trustee to a beneficiary.

How duty applies and any available exemptions generally depend on the type of trust. The main types are discretionary trusts, fixed trusts and unit trust schemes.

Acquiring property

When a trustee acquires dutiable property, duty applies in the same way as for any other purchaser. Duty is calculated on the dutiable value of the property. This is generally the greater of the price paid for the property or its market value.

Duty can also apply where a person changes from holding dutiable property personally to holding it as trustee and vice versa. A transfer of legal title is not required. What matters is that the property is held in a different legal capacity, resulting in a change in beneficial ownership. 

Declarations of trust

A declaration of trust is a document whose legal effect is that identifiable property is or is to be held in trust for certain persons or purposes. 

If the document creates a trust over dutiable property, such as land, duty applies at the same rate as a transfer of that property. If the trust property is non-dutiable property, such as cash, duty of $200 applies. Learn more about the duty payable when signing a trust deed. 

A document that only acknowledges an existing express trust is not usually a declaration of trust because it does not create or alter legal rights or obligations. 

Changes in trusts holding dutiable property

After a trustee acquires dutiable property, duty may apply if the trust or its beneficiaries change. It depends on the type of trust and what has changed.

Discretionary trusts

Most family trusts are discretionary trusts. In a discretionary trust, the trustee can generally decide which beneficiaries receive income or property, and how much. If the trustee does not exercise this discretion, the trust deed usually includes default ways to distribute the income and property. 

Variations to discretionary trusts may trigger duty, particularly where they result in a declaration of trust or a change in the beneficial ownership of dutiable property.

Fixed trusts

In a fixed trust, beneficiaries have fixed interests that are not subject to the trustee’s discretion. For example, a trust where two siblings each hold a 50% interest.

Duty applies if fixed interests in a trust change. This includes:

• acquiring or increasing an interest in the trust
• a variation to the trust deed that changes beneficiaries’ fixed interests. 

In these cases, duty is calculated on the dutiable value of the fixed interest acquired.

Unit trust schemes

Landholder duty may apply if you acquire an interest in a unit trust scheme that holds land in Victoria worth $1 million or more. 

Hybrid trusts

Some trusts combine features of more than one type of trust. These are commonly called hybrid trusts. For example, a trust may have features of a discretionary trust and a unit trust scheme.

Correctly characterising a hybrid trust is important for duty purposes. Depending on the rights created by the trust deed, the trust may be treated as a unit trust scheme, discretionary trust or fixed trust. This treatment may affect:

• whether acquisitions in the trust are assessed under the landholder provisions
• which exemptions may apply when dutiable property held under the trust is transferred to a beneficiary. 

The nature of a hybrid trust depends on the legal rights and obligations created by the trust deed as a whole. It does not depend on the label given to the trust or how distributions to beneficiaries have been made in practice. Each hybrid trust deed must be considered on its own terms.

Where a hybrid trust has unitholders, the trust deed may give them an entitlement to participate proportionally in the trust property if the trust is wound up. If it does, the trust may be treated as a unit trust scheme even if the trustee also has discretionary powers. In those circumstances, landholder duty may apply to acquisitions of units if the trust holds land in Victoria worth $1 million or more. 

Mirror or cloned trusts

A mirror or cloned trust arises where a new trust is established that replicates the terms and beneficiaries of an existing trust. 

Duty applies when dutiable property ceases to be held under the original trust and is now held under a new trust. This is so even where the trustee, beneficiaries and terms are the same. A transfer of legal title is not required for duty to arise. There is no specific exemption for this arrangement.

Lodging trust documents and transactions

You must lodge trust deeds executed in Victoria through Duties Online and pay duty within 30 days of signing. 

You must lodge any written document through Duties Online and pay duty within 30 days if it gives rise to:

• a declaration of trust
• a change in beneficial ownership of dutiable property. 

If there is no written document, you must still lodge the details of the arrangement. You should include a covering letter or supporting document that explains the arrangement and the property affected.

If you make a relevant acquisition in a unit trust scheme that is a landholder, you must lodge a landholder acquisition statement and pay duty within 30 days of making the relevant acquisition.