Land Tax on Discretionary Trust

Good thread. Question. I want asset protection, but I want to avail of the trust threshold in NSW. So has to be a unit trust. https://www.revenue.nsw.gov.au/taxes-duties-levies-royalties/land-tax/trusts. But can I not own 1% of the units (or whatever puts me under the threshold) and my mother the other 99% (mother lives in QLD, so NSW land tax exposure irrelevant). I get a place to live and the threshold (provided less than $1M) and no more than the 1% (my share) is at risk from creditors/spouse whatever. Even the 1% could be protected by gift-and-loan. It is not discretionary, but my exposure is near nil?

Second question. If I use a QLD trust to buy NSW property, it has to be presumably a unit trust to register for the NSW threshold (annoying since QLD law affords the same benefit to discretionary trusts)?

Third question. A natural person is exempt from land tax on your PPOR and the first 692k in NSW (or 600k in QLD) of any other subsequent property, correct?

 

There is no threshold for trusts in NSW, only for fixed trusts. Unit holders will be assessed as if owners of the property.

Re your scheme the asset protection will depend on the structure of the transaction as well as the ownership and funding. Instead of a unit trust could your mother just own 100%?

The PPOR doesn't count towards the land tax free threshold, it is only NSW land that is not the PPOR that is counted with land tax payable only when the threhold exceeded.

 

Your mother would be liable to nsw land tax as a indirect owner. Her residence is irrelevant. A UT will disclose unitholders who are potentially assessed on secondary tax if they own any other nsw property. They dont double dip.

I think i see your intention. But no cgt exemption and cgt and even stamp duty could occur later to effect changes to the percentage of beneficial trust ownership entitlements. The trust may even be subject to qld stamp duty so seek legal advice. QLD has tough indirect duty laws

 

What type of things make a trust not settled properly?

 

Another thing to consider is that land tax if for IP is tax deductible.
Also, it really depends what you wish to achieve from your IP investing strategy, if you never plan to sell you may eventually creep up the land tax bracket regardless on the entity bought in. Will you accumulate more in time...so just consider this as cost of doing property business.
Sometime people get really stuck on minor details as opposed to seeing the larger BIG picture.
You can buy under different entities but if you grow your asset base in many states in many entities you will eventually pay land tax.
It is something I pay a lot...!

 

Thanks Terry.
In NSW, threshold is available to fixed unit trust as you stated.
Mother is the trustee. I believe Part 4 (11) 1b of LAND TAX MANAGEMENT ACT 1956 - SCHEDULE 1A says if trustee and unit holders are the same – cannot claim land tax exemption (see also https://www.revenue.nsw.gov.au/help-centre/resources-library/lt082v5). That’s why I held 1% of the units.

Re: Q3. A natural person in NSW or QLD can get 100% land tax exemption - for the PPOR. A PPOR exemption also applies to compliant trusts (QLD: https://www.treasury.qld.gov.au/resource/lta000-1/ and NSW https://www.revenue.nsw.gov.au/help-centre/resources-library/lt082v5) where beneficiary (ie; me) lives on land. Since land tax is state based, as long as trustee has no [other] land in NSW and land value is < threshold – no NSW tax. for her.
Ie; Since I own nothing in my name, I can buy a second property (in either state) up to value of state threshold and not pay land tax myself. But you seem to be saying that in QLD, the PPOR is included in landowners total taxable holdings? If my home is $2M dollars, isn't that PPOR tax free in any state?

Thanks Paul - why would there be no 50% CGT exemption? Because QLD trust buying in NSW?

 

A person cannot be both trustee and sole beneficiary as there would be no trust.

In new the ppor land tax exemption is available for land held in fixed trusts where the trustee is an individual

Best to see a lawyer and get some advice

 

Not being settled in the manner prescribed in the deed
Deed isnt signed
No trust assets accounted for
No bank account
No duty on the deed
.....

 

Re: asset protection for NSW fixed unit land trust;

A. Would becoming the trustee of the fixed unit trust shield property housed in the trust - if I'm not a beneficiary? ie; I merely 'administer' the trust for the 'real' beneficiary. If I am bankrupted or hauled through family court - how could the trust assets be dragged in (especially if I utilise a corporate trustee with myself as director). What does it matter if I live at the property; or would they see it as a scam?

B. MCG claim (2011) they can access the LT threshold despite the use of a discretionary (non-fixed) trust as a/the beneficiary (https://prc.macquariegs.com.au/down...Conversion_Discretionary_Trust_Unitholder.pdf). I assume it is now invalidated by anti-avoidance clauses in the Act? It effectively would decouple any beneficiary of the second DT trust from the asset - however the base logic used seems pretty dodgy

 

1. What if I owned 1 unit and my mother (who is sole trustee) 99 units? My exposure would be ~nil because I control ~nothing. Wouldn't I have close to 100% asset protection? If I eventually get the units via a testamentary trust, I even skip CGT.

2. NSW OSR ruling LT082v5 (https://www.revenue.nsw.gov.au/help-centre/resources-library/lt082v5) states that beneficiaries of a NSW fixed unit trust can claim PPOR exemption if they live at the property. I guess this is like QLD; QLD LT Act, sect 41,1,b(ii). It references NSW Land tax management Act - Sched 1A, Part 4 : §11 – however this interpretation, I cannot find. Can anyone find or confirm this?

 

Yes, she cannot be taxed as a trustee but since she also holds units, it would count towards her (NSW) LT threshold (assuming a fixed UT). As long as she holds zero other property in NSW (or her total taxable land in NSW is < the NSW LT threshold), she pays nothing.

 

Not necessarily

 

I worked at Macquarie Group and understand the concept. In some cases its fine. I would be asking for their legal opinion on your situation as it relates to the present laws (not 2011) and the specific property. But Macquarie Group Services is not a law firm and dont deal with the public. The trust referred to is not a true discretionary trust and you may trigger CGT to modify the trust.

 

Provided the trust is approved by OSR NSW as a fixed trust and the unitholder owns no other property in NSW (excepting their own residence) than the TRUST only will be liable for land tax and no secondary assessment will issued to the unitholder. If that trust has land with a unimproved value under the threshold then nothing would be payable.

If the same person is also the trustee the trust may have a greater concern.

 

1. It depends what do you mean by 'asset protection' and what you are trying to protect yourself from. You would need to give a personal guarantee if there was a loan on the property where the property was used as security.

2. Yes, I got a private ruling for someone on this recently. Both trustee and beneficiary must reside there.

 

A. depends on what you mean by 'shield'. I thought you were going to be a beneficiary.
If you are bankrupted the units you own are assets that will fall into the hands of creditors.
The trust might be attacked many ways as well.
On the family law front it would be more easily attacked - you mother is just trustee for you in reality. You also control the trust.

B. It is important who owns the units on 31 Dec. Unit can be transferred the day before to an individual and a day after to DT. This will trigger a capital gain each year, be a breach of any mortgage, but could be done without duty if not a 'landholder'.

Legal advice should be sought.

 

Changes to unitholders for a NSW fixed trust should always receive legal advice. It can in itself render the trust without a threshold and a CGT and a duty issue. And in some of the worst cases I have seen a change of unitholder that vests the trust property.

Trusts can be a very complex and even dangerous avenue for DIY solutions. And reliance on a accountant may disguise the issues as the accountant isnt experienced or qualified in the relevant issues which are often legal concepts