Tax Tip 258: QLD Land held in Trust and Land Tax Exemption when living there

Discussion in 'Accounting & Tax' started by Terry_w, 7th Dec, 2019.

Join Australia's most dynamic and respected property investment community
  1. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    35,838
    Location:
    Australia wide
    Tax Tip 258: QLD Land held in Trust and Land Tax Exemption when living there


    In QLD land held by the trustee of a discretionary or unit trust could be exempt from land tax if the land is used as the home of the beneficiaries of that trust and other requirements are met. See s42 Land Tax Act 2010 (QLD)


    Note that ‘beneficiaries’ of discretionary trusts are considered to be “the persons in whose favour a power of appointment has been exercised during the 12 month period ending when the liability arises.” S24

    A power of appointment means, here, those who have been make presently entitled to income or capital of the trust.


    Example

    Aunt Thelma sets up the Thelma and Patty trust which holds a property in Brisbane. Thelma is the trustee and lives in Sydney. Patty is one of many beneficiaries and she lives in the Brisbane property. In year 1 Patty receives a distribution from the trust so the land should be exempt from land tax. But in year 2 Patty doesn’t receive anything as Thelma distributes all the income to herself. The next taxing of the trust should not be exempt as Patty won’t be a beneficiary for the purposes of s24.


    See

    s24 Land Tax Act 2010 (QLD) LAND TAX ACT 2010 - SECT 24 Beneficiaries of discretionary trusts

    s42 Land Tax Act 2010 (QLD) LAND TAX ACT 2010 - SECT 42 Partial exemption if land used for non-exempt purpose
     
    Gen-Y likes this.
  2. frecak

    frecak Active Member

    Joined:
    4th May, 2019
    Posts:
    31
    Location:
    melbourne
    §24 of the land tax act 2010 (QLD) says that a beneficiary of a trust (for land tax purposes) is “a person in whose favour, a power of appointment was exercised". Ie; a distribution. Not “default beneficiaries”.

    i) previously, I thought that all the beneficiaries in the deed had to live on the property to get the land tax exemption as per §41 (1) b (ii).

    ii) Instead, you could have 10 beneficiaries – but only one would need to live on the property to receive the exemption, provided he/she was the recipient of the distribution ($1?).

    This is interesting because if you are the only default beneficiary on the deed, it could be argued that the trust is a financial resource (eg; family law) – but not if it was diluted by the presence of said ‘ghost’ beneficiaries.

    Is this a valid asset protection strategy?
     
  3. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    35,838
    Location:
    Australia wide
    You are right. Most don't understand the power of appointment bit, they think it has something to do with the apponitor role.

    But don't think you are right on the family law side of things.

    Generally best to avoid default beneficiaries as they have an interest in the trust whereas other beneficiaries have a mere expectancy.
     
    [email protected] likes this.
  4. Paul@PAS

    [email protected] Tax, Accounting + SMSF + All things Property Tax Business Plus Member

    Joined:
    18th Jun, 2015
    Posts:
    18,473
    Location:
    Sydney
    So often overlooked. I often see Deeds with a list of family members. The kids are best left unnamed as the clauses in the deed probably may include them. One of the concerns with these sorts of trusts is that the tax adviser may be thinking "income tax" where the structure has a land tax benefit. The issue for that trust can be whether it has other income so that the trust has net income to distribute using a power of appointment.

    I would imagine the QLD Land Tax matter could well produce an adverse family law issue where you are declaring the trust as a residence... and of course no CGT main residence exemption.
     
  5. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    35,838
    Location:
    Australia wide
    merely naming beneficiaries in the deed does not make them default beneficiaries. Default beneficiaries are ones where income or capital goes to unless the trustee decides otherwise. Some stamp duty and asset protection issues with this, but it can be a good estate planning strategy in limited situations such as leaving control of a trust to 2 kids who cannot agree. If they agree the income and or capital can go where the trustee decides if they cannot agree they get it by default.
     
    [email protected] likes this.
  6. Gen-Y

    Gen-Y Well-Known Member

    Joined:
    8th Nov, 2015
    Posts:
    2,560
    Location:
    Brisbane - Sydney
    Thanks for clarification Terry. :D
    You are a gem @Terry_w
     
    Terry_w likes this.
  7. frecak

    frecak Active Member

    Joined:
    4th May, 2019
    Posts:
    31
    Location:
    melbourne
    yes terry and paul, thank you.
     

PFA Property Expo is designed in a way that visitors can gather maximum real estate knowledge with added benefits. Different speakers will be presenting on different topics as where to buy, when to buy in this market...