NSW Land Tax and Trusts that own the home

I often am asked by people if they could have their home owned in part or full by a trust or company. The ones who ask about part ownership may be thinking of a trust issue where they think some asset protection could complicate a creditors claim. I will advise them to get solid legal advice before doing this. Once they get legal advice that says its a recommended strategy, then I ask them to come back for the supporting tax advice. You know what, nobody ever has.

One of the pitfalls is land tax. This is a complex area and the outcomes can vary for some FIXED trusts compared to a "special trust" which includes for example a discretionary or hybrid trust. I will address the basic discretionary trust issue.

NSW Land Tax Schedule 1A contains the Commissioners rulings with respect to land tax exemptions and concessions. Clause 11 is a problem.

• If a trust or company is co-owner of a home along with natural persons its is NOT land tax exempt in whole or even in part even when the home is occupied by the natural persons who are also owners
• If a special trust or company owns the property it is NOT land tax exempt when used as a residence by associates.

So what could this land tax cost be ?

1.6% of the unimproved land value. eg A $500,000 home site = $8,000 and a $1m block would be $16,000 per year.

 

In simple English, u will have to pay land tax even if u are living there as the house is held by a trust?

 

Yup. It may be an expensive form of protection when you never need to call upon it.

 

Yes. On every single dollar of land value too. No threshold.
There may be a exceptions for some trusts eg a fixed unit trust etc

 

The asset protection could be exposed if you live there and pay costs to maintain the property too. This could be something Terry would be best to explain

 

asset protection is such a complicated topic, not sure if indeed worth the efforts as it’s costing a fortune to maintain a trust n associated costs