For land tax purposes, a fixed trust is a trust that is not an excluded trust, a discretionary trust or a trust to which a unit trust scheme relates.
The beneficiaries of a fixed trust are fixed, along with their proportional interest in the trust, for example, a trust for 2 siblings who are each entitled to 50% of the trust fund.
Taxing fixed trusts
A trustee of a fixed trust has 2 options:
- notify RevenueSA of all the beneficial interests in the trust and pay land tax at the general rates of land tax or
- not notify RevenueSA and pay the trust rates of land tax for the trust held land.
Effect of notifying of the beneficial interests
By notifying RevenueSA of the beneficial interests:
- both the beneficiary(ies) and the trustee will be considered owners of the trust held land and
- the trustee will be assessed land tax at general rates of land tax.
Each beneficiary will be treated as if they own a portion of the trust held land equal to their interest in the trust. Land tax will be assessed against the beneficiaries at the general rates of land tax.
The notification of beneficial interests will take effect at the option of the trustee for either the tax year in which the notification is lodged or for the following year.
If there is a change in the beneficiaries while a notification of beneficiaries is in force, the trustee must notify RevenueSA within one month of the change. Failing to notify may give rise to a tax default under the Taxation Administration Act 1996. When this happens, the trustee may be liable for interest and penalty tax on the additional amount of land tax that would have been assessed if the trustee had notified RevenueSA.
The notification will remain in force until the trustee withdraws it. However, once a notification is withdrawn, the trustee cannot lodge another notification and is liable for land tax at the trust rates of land tax.
Unlike discretionary trusts, a beneficiary of a fixed trust cannot withdraw a notice of beneficial interests.
Principal place of residence exemption for fixed trusts
In the first instance, land owned by a trustee who is a natural person and which constitutes their principal place of residence may be eligible for a land tax exemption.
If a beneficiary notice is in force, the beneficiaries are considered to be owners of any land held on behalf of the trust. If that land includes land that is occupied by all of the beneficiaries as their principal place of residence, that land may be eligible to receive an exemption from land tax if:
- the land constitutes the principal place of residence of all beneficiaries; and
- the land would, if it were owned by a natural person, be wholly or partially exempted from land tax on the basis that it is the principal place of residence of all beneficiaries.
If those conditions are met, the land that is occupied by all of the beneficiaries as their principal place of residence would be exempt from land tax and will not be included in the assessment of land tax for the trustee or the beneficiaries.
However, once a notice is withdrawn, the beneficiaries will no longer be considered owners of the land held on behalf of the trust, and the land will no longer be eligible to receive a principal place of residence exemption on the basis that it is the beneficiaries’ principal place of residence. Land tax will then be assessed against the land, using the trust rates of land tax.
Assessing fixed trusts with notified beneficial interests
Fixed trusts that have notified RevenueSA of the beneficial interests in the trust are assessed in 2 stages:
Stage 1 - Assessing the trustee of the fixed trust
The trustee for the land held on fixed trust is assessed at the general rates.
All land held by the same trustee for the same trust will be aggregated together and land tax will be calculated on the total site value of the land held on behalf of the trust.
Where the trustee owns a portion of a parcel of land on trust, such that it is a joint owner of the land, the trust assessment will include a deduction equal to the trustee’s portion of the land tax assessed under the joint ownership. This deduction will reduce the land tax payable under the trustee’s ownership and, in some cases, the trustee may not have any further land tax liability to pay.
Stage 2 - Assessing the notified beneficiary
Each beneficiary will be assessed land tax based on their interest in all land they own, including any land held by a fixed trust that they are beneficiary of.
The beneficiary(ies) will be assessed land tax at the general land tax rates of land tax.
The beneficiary’s assessment will include a deduction equal to their share of the land tax assessed under the trustee’s ownership (Stage 1 above).
If the beneficiary does not own any other taxable land, the deduction will reduce the land tax payable to zero and there will be no further land tax liability to pay by the beneficiary.
If a beneficiary does own other taxable land, they will be assessed at the general rates of land tax on the aggregated value of their proportionate interest in the trust held land and any other taxable land they own. This includes land they own by themselves or jointly with others.
If the notified beneficiary is the trustee of another trust, being either a fixed or unit trust, it will be treated as a beneficiary-trustee. This is discussed further below.
Trust deduction
To avoid double taxation, any land tax assessed against the trustee in respect of land held on behalf of the fixed trust is to be deducted from land tax assessed against the beneficiary(ies). The deduction is applied to the total land tax assessed against the beneficiary(ies) and not just to the land tax assessed for the land subject to the trust.
This deduction is equal to the beneficiary’s proportionate share of the land tax in the trustee’s assessment.
The deduction will never reduce the amount of land tax assessed against the beneficiary below zero.
If, after the trust deduction, a beneficiary is not liable for land tax, they will not receive a notice of assessment.
A beneficiary can find their deduction on their notice of assessment.