Earlier this week, clients sent me a Land Tax Assessment Notice for $18,000.  Their family trust owns an impressive house, which they rent out.  They intend to move into the house as the family home.  Bearing in mind that land tax is an annual charge, which usually increases each year – they wanted to know whether the land tax could be avoided.

Today’s article provides some good news, as it explains the circumstances where Land Tax won’t be payable on a family home owned by your family trust.  You can enjoy the asset protection benefits of a Family Trust without paying the ever-increasing burden of annual land tax payments.

Most people own their home in their personal names & enjoy these financial benefits:

  • lower (or no) Transfer Duty
  • no Land Tax
  • no Capital Gains Tax

However, asset protection is becoming more important to many people, and they avoid owning assets in their personal names.  The problem with owning your home in your family trust is that you lose these 3 major financial benefits.

What is Land Tax?

Land Tax is an annual tax recovered from property owners.   The tax is calculated on the value of the property owned as at 30 June each year.

Importantly, the family home is exempt.  There is also a tax-free threshold for all other property.  Consequently, the majority of property owners do not pay land tax – although the number of taxpayers will increase as property values increase.

The family home is exempt where the property is owned in personal names, and the owners live in the property as their home.

But what about where the family home is owned by a company or a trust?

The family home exemption is not available to a company.

However, the exemption may be available to a trust if the eligibility requirements are satisfied.   The concession is still available to the trust even if the trustee is a company.

Who can claim the exemption?

To be eligible:

  1. the property owner must be a trustee of a trust, &
  2. the property owner / trustee must not be someone who does not usually reside in Australia, &
  3. all the beneficiaries of the trust must occupy the property as their home, & have no other home.

Use of the Property?

Where the property is used as the beneficiaries home, as well as for other purposes (such as a rental property or to conduct a business), the circumstances will be reviewed to determine the effect on the entitlement to the exemption.

Your circumstances may change, as is the case with our clients, and thus your eligibility to the exemption may also change.  Where your circumstances change, such as where one of the beneficiaries of the trust ceases to live in the home, your entitlement to the exemption may be reduced rather than extinguished.

The beneficiaries must have occupied the property as their home (and had no other home) during the last 6 months of the financial year – although the Commissioner does have a discretion if less than 6 months.

Who are  the beneficiaries?

This is an important question as all beneficiaries must occupy the property to claim the full exemption.

1.  For a Discretionary Trust, a beneficiary is either:

(a)  someone who has received a distribution of trust property (or other benefit) from the Trustee during the year, or

(b)  if no distributions have been received, the default beneficiaries listed in the trust deed

2.  For a Unit Trust (any trust other than a Discretionary Trust), a beneficiary is someone entitled to receive the income or the assets of the trust.

How to Apply?

An application form is completed and lodged with the Office of State Revenue.  In some cases, with copies of documents will be attached to the application.

Where the exemption is allowed, you do not need to reapply each year.  However, where your circumstances change, this information has to be provided to the Office of State Revenue.

Disclaimer: The above is to be considered as general education. This is not advice and it is not to be acted upon without advice from a qualified professional who understands your personal circumstances.

Copyright © 2018 Wockner Lawyers. All Rights Reserved. Contact Wockner Lawyers – [email protected]. This article may not be used without the prior written consent from the author. See below for more details…

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