Land tax and trusts
Special rules apply to land held on trust.
If you are a trustee holding land on trust, you must tell us and keep us notified of certain changes.
We assess each trust that a trustee acts for separately and send them our assessment. If you are the trustee of multiple trusts, you will receive a separate assessment for each trust unless the trusts have the same beneficiaries.
Land tax trust surcharge
Land held on trust for a fixed, discretionary or unit trust is generally assessed at trust surcharge rates of land tax. The trust surcharge does not apply to land held by an administration trust, an excluded trust or an implied/constructive trust.
The trust surcharge rates are higher than general land tax rates and apply once the total value of the taxable land held by the trust is $25,000 or more. When the total value of the taxable land is $3,000,000 or more, there is no difference between the general and trust surcharge land tax rates.
If you tell us about the beneficiaries of the trust, we may assess the trust at general rates and may also assess the beneficiaries for their interest in the trust land in any individual assessments they receive.
Absentee owner surcharge
If you are the trustee of an absentee trust, the absentee owner surcharge applies to the trust’s taxable land. The absentee owner surcharge is additional to the land tax you pay at general or trust surcharge rates.
For the 2020 land tax year onwards, the surcharge is 2 per cent (previously 1.5 per cent for the 2017-2019 land tax years and 0.5 per cent for the 2016 land tax year).
An absentee trust is a discretionary trust, a unit trust or a fixed trust, which has at least one beneficiary who is an absentee person. If you are the trustee of an absentee trust that owns taxable land, you must also tell us you are an absentee owner.
Trustee notification requirements
All trustees must notify us that they hold Victorian land on trust and when they acquire additional Victorian land as a trustee.
Within one month of acquiring land as trustee, you must lodge a notice of acquisition with Land Use Victoria, and also a notice of trust acquisition of an interest in land form with the State Revenue Office. You must lodge these notifications again, each time the trustee acquires additional land for the trust.
If you have not yet made any of these notifications, you should do so.
Trustees must also notify us in writing within one month if:
- There is a change in the type of trust, (for example, from a discretionary trust to a fixed trust).
- There is a change in the beneficial interest(s) of a fixed trust, where a notification of beneficial interest is in force,
- There is a change of unit holdings in a unit trust, where a notification of unit holdings in the trust is in force, or
- The nominated PPR beneficiary ceases using the trust land as their principal place of residence (PPR).
Failing to notify us within the required time limit (one month) is a notification default under the Taxation Administration Act 1997. When this happens, you may be liable for penalty tax on the additional amount that would have been assessed if you had notified us of the issue within time.
There are different land tax rules for different trust types:
- discretionary trusts,
- unit trusts,
- fixed trusts,
- sub-trusts - when a beneficiary of a trust (first trust) is a trustee of another trust (second trust),
- deceased estates (including administration trusts),
- excluded trusts:
- charitable trusts,
- concessional trusts established for a person who has a disability or is subject to a guardianship order,
- public unit trust schemes,
- wholesale unit trust schemes,
- trusts holding land used by a club that is eligible for the concessional rate of land tax,
- superannuation trusts of a complying superannuation fund,
- implied/constructive trusts.
Read our frequently asked questions.
For land tax purposes, a discretionary trust is a trust under which the vesting of the whole or any part of the trust property is either:
- Required to be determined by a person either in respect of the identity of the beneficiaries or the quantum of interest to be taken, or both.
- Will occur in the event that a discretion conferred under the trust is not exercised.
A discretionary trust does not include an excluded trust.
Generally, a family trust is a discretionary trust. The trustee has discretion as to which beneficiary can benefit from the trust fund and in what amount. If the trustee does not exercise the discretion, the trust deed sets out who will benefit from the trust fund.
Taxing discretionary trusts
The land tax treatment of discretionary trusts depends on:
- Whether the land was acquired before or after 2006.
- If the land was acquired before 2006, whether there is a nominated beneficiary in place.
- Whether there is a nominated PPR beneficiary in place.
Land acquired before 2006 (pre-2006 land)
Land acquired before 2006 and held by a trustee of a discretionary trust will be taxed at surcharge rates, unless there is a nominated beneficiary in place.
If there is a nominated beneficiary in place, we consider both the nominated beneficiary and the trustee are owners of the trust land. We will assess the trustee and the nominated beneficiary in two stages and assess the trustee at general (and not surcharge) land tax rates.
If there is no nominated beneficiary, or the nomination was lodged outside of the required the timeline, the trustee is assessed at the surcharge rate. If the beneficiary is using the land as their PPR, the trustee may nominate a PPR beneficiary for land used by that beneficiary as their PPR.
The deadline for nominating a beneficiary for pre-2006 land was 30 June 2006. This deadline has passed and we do not accept late nominations.
We will now only accept new nominations in two very limited circumstances:
- The previously nominated beneficiary has died or the trustee has revoked their nomination. In this situation you can nominate a subsequent beneficiary if we consider your nomination is just and reasonable.
- You lodged your nomination within three months of the land first becoming liable for land tax. This can only apply if the trust acquired land before 2006 and it has only now become subject to land tax. This may arise if the land is no longer exempt from land tax or the total value of the land held by the trust now exceeds the trust threshold of $25,000. The nomination will take effect for the tax year in which it is lodged.
Assessment of pre-2006 land held by discretionary trusts with nominated beneficiary
We assess pre-2006 land held by discretionary trusts with a nominated beneficiary in two stages.
Stage 1 - Assessing the trustee of the discretionary trust
We assess the trustee for pre-2006 lands held for the discretionary trust at general rates. If the nominated beneficiary does not own other taxable land, there will only be one assessment issued to the trustee for the land.
Stage 2 - Assessing the nominated beneficiary
If the nominated beneficiary owns other lands, we assess the nominated beneficiary for all of their interests in taxable land, in any capacity, including land they own by themselves, with others and under other trusts.
The nominated beneficiary will be assessed as if they were the owner of the pre-2006 land and at general land tax rates on the total value of pre-2006 land and any other taxable land.
Because we assessed the trustee for the pre-2006 land, we use a formula to apply a deduction to the nominated beneficiary’s assessment.
This deduction is the lesser of either:
- The beneficiary’s share of the tax in the trustee’s assessment.
- The amount of tax which the pre-2006 land represents in the nominated beneficiary’s individual assessment.
If, after the trust deduction, you are not liable for land tax you will not receive an assessment. This is the case if you do not own any land, other than your interest in the pre-2006 land.
You can find your deduction on page 2 of your assessment.
Land acquired from 2006 onwards (Post-2006 land)
All land acquired by a trustee of a discretionary trust after 31 December 2005 will be taxed at the trust surcharge rate. This applies even if the trustee has nominated a beneficiary for pre-2006 land, unless the post-2006 land is used by a nominated PPR beneficiary as their PPR.
Land tax on both pre-2006 and post-2006 land
For discretionary trusts that own both pre-2006 and post-2006 land, with a nominated beneficiary in place, their land tax is calculated by using a formula that proportionally applies general rates to pre-2006 land, and surcharge rates to post-2006 land:
[(Land tax at general rate on total taxable land) x (Total pre-2006 taxable land ÷ Total taxable land)] + [(Land tax at surcharge rate on total taxable land) x (Total post-2006 taxable land ÷ Total taxable land)]
If a discretionary trust beneficiary is using trust land as their PPR, the trust may nominate a PPR beneficiary for that land. This will result in the land used by the PPR beneficiary being separately assessed from the other trust held land and at general land tax rates, as though it were the only land owned by the trustee.
Further, the PPR beneficiary will not be assessed for land tax on this land used as their PPR.
A trust may only nominate one PPR beneficiary. This nomination will take effect for the tax year in which it is lodged.
For land tax purposes, a unit trust is an arrangement made to or having the effect of providing facilities that allow a person to participate as a beneficiary under a trust in any profit or income arising from acquiring, holding, managing or disposing of property under the trust.
Beneficiaries of a unit trust are generally called unitholders and are entitled to trust funds in proportion to their unitholdings.
A unit trust does not include excluded trusts.
Taxing unit trusts
Unit trusts are taxed at trust surcharge rates unless they choose to either:
The trustee of a unit trust may only make one of these notifications.
Effect of notifying of unitholders
If you notify us of the unitholders in the unit trust scheme, both the trustee and the notified unitholders will be considered the owners of the trust land and liable for land tax on their interest in the trust.
We will assess the trustee of the trust at general rates. Each notified unitholder will be treated as if they own a percentage of the trust land which is equal to the number of units they hold as a fraction of the total number of units of the trust.
The notification of unitholdings only takes effect from the tax year after the year in which it is lodged. It does not apply retrospectively and remains in force until it is withdrawn by the trustee. If the notification is withdrawn, the trustee will not be able to lodge another notification.
If there is a change in the unitholdings while a notification of unitholdings is in force, the trustee must notify us within one month of the change. Failing to do so may result in penalty tax being applied to the trust’s assessment.
Assessing unit trusts with notified unitholders
We assess unit trusts that have notified us of the unitholders in the trust in two stages:
Stage 1 - Assessing the trustee of the unit trust
First, we assess the trustee of the unit trust at general rates. If none of the unitholders own other taxable land, the only assessment for the trust will be issued directly to the trustee.
Stage 2 -Assessing the notified unitholders
If a unitholder owns other taxable land, we will assess them at general rates on the aggregated value of their proportionate beneficial interest in the trust land (calculated by reference to their proportionate share of unitholdings in the trust) and any other taxable land they own. This includes land they own by themselves, with others and under other trusts.
If a notified unitholder is the trustee of another trust, we will treat it as a sub-trust.
Because we assessed the unit trustee for the trust held land, we use a formula to apply a deduction to the notified unitholder’s assessment.
This deduction is the lesser of either:
- The notified unitholder’s share of the tax in the trustee’s assessment.
- The amount of tax that the trust held land represents in the notified unitholder’s individual assessment.
If, after the trust deduction, you are not liable for land tax you will not receive an assessment.
You can find your deduction on page 2 of your assessment.
If land held by a trustee of a discretionary trust or a unit trust is used by a beneficiary or unitholder as their principal place of residence (PPR), the trustee can make a PPR nomination.
Trustees are assessed on the land used by the PPR beneficiary as though it was the only land owned by the trustee and at general rates. The land is exempt for the PPR beneficiary and they will not be individually assessed on it.
Each trust can only nominate one PPR beneficiary, and nominations can be made any time. Trustees can nominate a subsequent PPR beneficiary of a discretionary or unit trust at any time.
To be eligible, the nominated PPR beneficiary must use and occupy the land as their PPR for the relevant period, and must not use it to conduct substantial business activity.
The relevant PPR period is either:
- From at least 1 July to 31 December of the year before the assessment year.
- If the trustee became the owner of the land after 1 July of the year before the assessment year, sometime in the year before the assessment year (i.e. by 31 December).
A nomination will be effective for the land tax year in which the nomination is lodged. A nomination cannot apply retrospectively, even if the nominated PPR beneficiary used and occupied the land as their PPR in prior years.
If the nominated PPR beneficiary dies, or stops using and occupying the land as their PPR, the trustee must lodge a written notice of this change within one month of it taking place. If another beneficiary uses the land as their PPR, the trustee may nominate a subsequent PPR beneficiary.
In a fixed trust, the beneficiaries are fixed, along with their proportional interest in a trust — for example, a trust for two siblings who are each entitled to 50 per cent of the trust fund. A fixed trust does not allow other beneficiaries to be added or removed or for beneficiaries’ interests to be varied. Certain assets previously allocated to specific beneficiaries cannot be transferred to other beneficiaries.
For land tax purposes, a fixed trust is a trust that is not an excluded trust, a discretionary trust or a trust to which a unit trust scheme relates.
Taxing fixed trusts
A trustee of a fixed trust has two options:
- Notify us of beneficial interests in the land and pay land tax at general rates.
- Not notify us and pay the surcharge rate of land tax for the trust land.
An exemption is also available for land used and occupied by a beneficiary of the trust as their PPR.
Fixed trust beneficiary using trust land as their PPR
A trustee of a fixed trust receives an exemption from land tax on trust land that is used and occupied by a beneficiary of the trust as their PPR. That exemption is proportionate to the beneficiary’s beneficial interest in the trust land, provided the PPR exemption requirements are met. The interest of any non-resident beneficiary will be taxable.
Effect of notifying of the beneficial interests in land
By notifying us:
- Both the notified beneficiary and the trustee will be considered owners of the trust land and liable for land tax on their interest.
- We will assess the trust at general rates.
A notification of beneficial interests in land only takes effect the tax year following the year in which it is lodged (i.e. if you lodge your notice this year, it won’t apply until next year). It cannot be applied retrospectively.
The notification will remain in force until the trustee withdraws it. However, once a notification is withdrawn, the trustee cannot lodge another notification.
Assessing fixed trusts with notified beneficial interests
We assess fixed trusts that have notified us of the beneficial interests in the land in two stages:
Stage 1 - Assessing the trustee of the fixed trust
First, we assess the trustee for the lands held on fixed trust at general rates. If a beneficiary does not own other taxable land, the only assessment for the trust land will be issued directly to the trustee.
Stage 2 - Assessing the notified beneficiary
Each notified beneficiary of the trust will be treated as if they own a percentage of the trust land which is equal to the percentage of their beneficial interest in the trust land.
The notified beneficiaries will be assessed at the general land tax rates.
Each notified beneficiary will be assessed on the total taxable value of their share of the trust land and the value of any other taxable land that they own (other than exempt land) subject to a deduction for the proportional tax payable by the trustee.
If the notified beneficiary is the trustee of another trust, we will treat it as a sub-trust.
If the beneficiary of a fixed or unit trust is a trustee of another trust (i.e. a sub-trust), we will ‘look through’ to the ultimate beneficiaries provided we have been notified of the beneficial interest/unitholders of the first trust.
The second trust can avoid paying the surcharge rate if the trustee of the second trust also notifies the Commissioner of the beneficial interest of the second trust. The beneficiaries of the second trust will be regarded as the owners of the land and will be assessed as notified beneficiaries or unitholders.
Example - A unitholder of a unit trust (first trust) is the trustee of a fixed trust (second trust)
Trustee X holds Mayfair Place for the Alpha Unit Trust (first trust). The trust’s only unitholder, ABC Pty Ltd, holds these units as the trustee of Beta Fixed Trust (second trust).
Notifications for the first trust (Alpha Unit trust)
Trustee X can avoid the surcharge rate by notifying us of the unitholder (i.e. that ABC Pty Ltd is its unitholder). Trustee X of the Alpha Unit Trust will then be assessed on the trust land at the general rates.
Notifications for the second trust (Beta Fixed Trust)
As ABC Pty Ltd is a notified unitholder, it is also considered an owner of land held by the Alpha Unit trust. It can then choose to notify us of the beneficiaries in the Beta Fixed trust.
If ABC Pty Ltd notifies us of the beneficiaries of the Beta Fixed Trust, we will assess it at general rates for its interest in the Alpha Unit Trust together with any other land it holds on trust for the Beta Fixed Trust.
If ABC Pty Ltd does not notify us of the beneficiaries in the Beta Fixed Trust, it will be assessed at surcharge rates for its interest in the Alpha Unit Trust.
Either way, ABC Pty Ltd will receive a proportional deduction for the tax that Trustee X has been assessed on for Mayfair Place.
These ‘look through’ provisions do not apply if the second (or any other subsequent) trust is a discretionary trust. In these circumstances, the surcharge rate will automatically apply to the discretionary trust.
A person acting in the capacity of an executor or administrator of a deceased estate is acting as trustee for the deceased estate for land tax purposes. These forms of trusts are referred to as administration trusts.
An administration trust is assessed at general rates during the concessionary period. The concessionary period generally begins when the grant of representation for the deceased estate is made (i.e. from the grant of probate or letters of administration) and ends on the earlier of the:
- Completion of administration of the deceased estate.
- Third anniversary of the death of the deceased person or a further period approved by us.
Within one month of the date of the appointment of the personal representative, we must be advised of the start of the administration of a deceased estate. Similarly, you must advise us within one month of the completion of the administration of a deceased estate.
A trustee of an excluded trust will be assessed on the trust land at the general land tax rates. The trust will not be subject to the surcharge rate.
Trustees of an excluded trust must advise us in writing that they act for an excluded trust. Beneficiaries of excluded trusts are not required to pay land tax on land held on trust for them.
A trust may qualify as an excluded trust if it is a:
- Charitable trust.
- Concessional trust (i.e. a trust of which each beneficiary is a person with a disability within the meaning of the Disability Act 2006 or a person in respect of whom a guardianship order is in force under the Guardian and Administration Act 1986).
- Public unit trust scheme (e.g. listed trust).
- Wholesale unit trust scheme (registered under Division 7, Part 2, Chapter 3 of the Duties Act 2000).
- Trust of which one or more of the beneficiaries is a club as referred to in s73 of the Land Tax Act 2005 or a member of such a club.
- Complying superannuation trust (including approved deposit fund and pooled superannuation trust).
In addition, an excluded trust includes a trust established by a will where the deceased died on or after 1 January 1989 but before 12 December 2007. The trust is an excluded trust for the period ending on the later of:
- The third anniversary of the deceased’s death or a further period approved by the Commissioner.
- If at the date of the deceased’s death, all the potential beneficiaries are minors, then the 18th birthday of the first beneficiary to turn 18.
An implied or constructive trust is not intentionally created but is imposed by law or arises in certain circumstances.
A trustee of an implied or constructive trust will be:
- Separately assessed on trust land at the general land tax rates.
- Assessed as if the trust land was the only land owned by the trustee.
If the trustee holds land for more than one implied or constructive trusts with the same beneficiary or beneficiaries, we will assess the trustee as though all lands held under these trusts were held by a single trust.