Tax Tip 349: Land Tax and Trusts in QLD – A trap

In QLD separate trusts can each receive a separate land tax threshold:

s20 Duties Act

http://www.austlii.edu.au/au/legis/qld/consol_act/lta201090/s20.html


However, there is a trap for young players in QLD. A trustee will be assessed separately from other land it may hold, other than as trustee. But if the trustee is trustee of 2 or more trusts they can be jointly assessed if the interests of the beneficiaries of 2 or more of the trusts are the same.


The trap is with the definition of “beneficiary”. Section 24(1), LAND TAX ACT 2010 - SECT 24 Beneficiaries of discretionary trusts, defines ‘beneficiary’ as

(1) The beneficiaries of a discretionary trust when a liability for land tax arises are the persons in whose favour a power of appointment has been exercised during the 12 month period ending when the liability arises.


“Power of appointment” means appointed income or capital.


Example

Bart is trustee of the Simpsons Family Trust and

Bart is also trustee of the Bart Simpson Family trust

The trusts have different terms and different beneficiaries, although there are some beneficiaries who are beneficiaries of both trusts.



In 2019 The Simpson Family trust distributes money to Bart and Lisa

In 2020 The Bart Simpson Family Trust distributes money to Bart and Lisa.



In 2020 Bart buys 2 properties in QLD as trustee - one as trustee of each trust.



These properties will be assessed as if they were both owned by the one trust as the beneficiaries are the same - according to the definition at s. 24


Solution - don’t be the trustee or more than 1 trust, but make a company act as trustee. If each of the trusts had a separate beneficiary they would not be jointly assessed.

 

You are sharing my little secret. I dont tell people this one and refer to the discretionary trust "trap" if humans are a trustee in QLD as a reason to seek specific legal advice. For many trusts it is a hidden booby trap as its not an active issue when losses are evident (although losses for a DT may be a seperate problem). Distributing from one trust to another can also trigger the issue. A issue that some accountants can trigger as they are unaware. eg They suggest The Simpson FT distribute to The Bart FT in 2019 and 2020.

This is a issue that often is only detected on audit or sale (clearance) as OSR QLD dont possess the information but may make enquiries of "groups" for review of the issue. They wil also seek copies of the deed and any amendments. Amending deeds in QLD can sometimes also pose some stamp duty concerns.

Bart Pty Ltd is a better trustee of the trusts. And back when land tax absenteeism was a tax problem for QLD citizens it also safeguarded against land tax if Bart or Lisa was overseas on holidays over the taxing date.

All the little traps for DIY tax problems.

 

If you own an investment property in QLD as an individual and have a trust with corporate trustee that also owns property, and the trust distributes to you...are you in any danger of the trust and the individual being grouped for land tax?

(Not referring to the proposed QLD land tax changes, just the current system).

 

No

 

Each trust and a "owner" whether a company, individual or jointly / TIC in any % are each individually assessed in QLD. Grouping rules apply in some states to companies. Aggregation of total interests also occur in some states (eg NSW) where the individual and OTHER interests with other human owners can be counted in total as a final form of assessment to limit duplication of threshold benefits. At present this doesnt occur wth trusts and may be difficult to even implement as a trust beneficiary doesnt hold any interest in the trust property and the beneficial interest may be far too broad to assess. eg Your parents could be potential beneficiaries as may a young child. I would rank the risk as exceptionally low. Other changes would be more probable first IF any changes were to occur.
eg
- No threshold
- Grouping trusts based on control tests
- A different tax rate for trusts