For land tax purposes, a discretionary trust is a trust under which the vesting of the whole or any part of the trust property is either:

  • required to be determined by a person either in respect of the identity of the beneficiaries or the quantum of interest to be taken, or both, or
  • will occur in the event that a discretion conferred under the trust is not exercised.

A discretionary trust does not include an excluded trust.

In most instances, a trust established for the benefit of a family group is a discretionary trust. The trustee has the discretion as to which beneficiary can benefit from the trust fund and in what amount. If the trustee does not exercise the discretion, the trust deed sets out who will benefit from the trust fund.

Taxing discretionary trusts

The treatment of land held on behalf of a discretionary trust for land tax depends on:

  • whether or not the land was subject to the trust as at midnight, 16 October 2019 (being the prescribed time);
  • if the land was subject to a trust as at midnight, 16 October 2019, whether a designated beneficiary was in place by 31 December 2021; and
  • whether the land constitutes the principal place of residence for the trustee or the designated beneficiary.

A discretionary trust will be assessed with the following land tax rates:

  • If the trustee nominated a designated beneficiary (by 31 December 2021), land held by the trust as at midnight, 16 October 2019 (pre-existing land), will be assessed at the general rates of land tax. Any land acquired by the trust on or after 17 October 2019 will be assessed at the trust rates of land tax.
  • If the trustee did not nominate a designated beneficiary, or has withdrawn a nomination of a designated beneficiary, all land held by the trust will be assessed at the trust rates of land tax, regardless of the date it was acquired.

Nomination of designated beneficiaries

The trustee had the opportunity to nominate a designated beneficiary for land held by the trust as at midnight, 16 October 2019 (pre-existing land). If a designated beneficiary was nominated the land would be assessed at the general rates of land tax.

The opportunity for trustees to nominate a designated beneficiary for a discretionary trust closed on 31 December 2021.

RevenueSA cannot accept late notices of designated beneficiaries. The Commissioner of State Taxation has no discretion to accept a beneficiary nomination after this date.

Where a trustee has nominated a designated beneficiary:

the land subject to the trust (as at midnight, 16 October 2019) will be aggregated with any other interests in land that the designated beneficiary owns. In other words, it will be treated like any other land they own or are deemed to be an owner of;

  • the nomination only applies to land held by the trust as at midnight, 16 October 2019; and
  • any land acquired by the trust on or after 17 October 2019 will be assessed at the trust rates of land tax.

In certain circumstances a designated beneficiary can be substituted for another designated beneficiary, these are outline later in this Guide.

The trustee may also withdraw the nomination of a designated beneficiary. This will result in the land being assessed at a higher rate (trust land tax rates). A person nominated to be the designated beneficiary of a trust can also withdraw the nomination, should they no longer consent to being the designated beneficiary for the discretionary trust.

Principal place of residence exemption for discretionary trusts

In the first instance, land owned by a trustee who is a natural person which constitutes their principal place of residence may be eligible for a land tax exemption.

If a designated beneficiary notice is in force, the designated beneficiary is considered to be an owner of any land held on behalf of the trust. If that land includes land that is occupied by the beneficiary as his or her principal place of residence, that land may be eligible to receive an exemption from land tax if:

  • the land constitutes the designated beneficiary’s principal place of residence; 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 designated beneficiary’s principal place of residence.

If those conditions are met, the land that is occupied by the designated beneficiary 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 beneficiary.

However, once a notice is withdrawn, the designated beneficiary will no longer be considered an owner 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 this basis that it is the designated beneficiary’s principal place of residence. Land tax will then be assessed against the land, using the trust rates of land tax.

Where:

  • a trustee of a discretionary trust held land as at midnight, 16 October 2019 but did not nominate a designated beneficiary by 31 December 2021; or
  • land becomes subject to a discretionary trust on or after 17 October 2019,
  • only a trustee who is also a natural person and living upon the land as their principal place of residence will be eligible to claim a principal place of residence exemption.

Assessment of pre-existing trust land held by discretionary trusts with a designated beneficiary

If a designated beneficiary was nominated before 31 December 2021, the trustee and the designated beneficiary will be assessed in 2 stages, with the trustee and the beneficiary being assessed at the general land tax rates (and not the trust rates of land tax).

The opportunity for trustees to nominate a designated beneficiary for a discretionary trust closed on 31 December 2021.

RevenueSA cannot accept late notices of designated beneficiaries. The Commissioner of State Taxation has no discretion to accept a beneficiary nomination after this date.

However, as discussed further below (see Beneficiary-trustees of fixed and unit trusts), if a notification is provided by a fixed trust or a unit trust scheme and a beneficiary/unitholder is a discretionary trust, the trust land tax rates will automatically apply to that particular interest in land that the discretionary trust is deemed to hold, including land that was subject to a fixed trust or unit trust scheme as at midnight, 16 October 2019.

Any land that becomes subject to a discretionary trust on or after 17 October 2019 will be assessed at the higher trust rates.

See the Guide to Legislation - Land Tax: Joint Owners for instances where land is jointly owned by multiple owners, with there being an assessment stage at the joint ownership level prior to the 2 stages discussed further below.

Stage 1 - Assessing the trustee of the discretionary trust

The trustee is assessed at the general rates for pre-existing trust land held on behalf of the discretionary trust.

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.

The trustee will receive a notice of assessment for the land tax assessed against the land they hold on behalf of the trust.

Where the trustee owns a portion of a parcel of land on behalf of a trust, their land tax assessment will include a deduction equal to the trustee’s portion of the land tax assessed under the joint ownership that they are a member of. 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.

Where the deduction reduces the land tax payable to zero, a Land Tax Assessment will not be issued to the trustee.

Stage 2 - Assessing the designated beneficiary

The designated beneficiary will be assessed land tax based on their interest in all land they own, including any land that they hold in their own capacity and any land held on behalf of a trust of which they are the designated beneficiary.

The designated beneficiary’s Land Tax Assessment will include a deduction equal to the land tax assessed under the trust ownership (Stage 1 above).

If the designated beneficiary does not own other taxable land (that is, in their own capacity or as a beneficiary of another trust), the deduction will reduce the land tax payable to zero and there will be no further land tax liability for the designated beneficiary.

If the designated beneficiary owns other land, the designated beneficiary is assessed on all of their interests in taxable land, including land they own by themselves or jointly with others, at the general rates of land tax.

Trust deduction

To avoid double taxation, any land tax assessed against the trustee in respect of pre-existing trust land is to be deducted from the land tax assessed against the designated beneficiary. The deduction is applied to the total land tax assessed for the designated beneficiary and not just to the land tax assessed for the land subject to the trust.

The deduction will never reduce the amount of land tax assessed against the designated beneficiary below zero.

If, after the trust deduction, a designated beneficiary is not liable for land tax, they will not receive a Land Tax Assessment.

A designated beneficiary can find their deduction on their individual Land Tax Assessment.

Example 2 - land held on trust

George is the trustee of 3 separate discretionary trusts. He owns for each trust separately a single parcel of land with a site value of $300,000 (combined $900,000 in site value).

George, as trustee, will be assessed at the trust rates of land tax on each of the trusts separately.

Alternatively, George has the option of nominating a designated beneficiary for each trust.

Where a designated beneficiary is nominated, a trust with the nomination in place will be liable for land tax at the general rates of land tax rather than the trust rates of land tax. In this example, as the site value of each property falls under the land tax free threshold, there is no land tax payable by George.

The designated beneficiary will have the value of land held on trust aggregated with any other land they are an owner of for land tax purposes. Any land tax payable by the trustee is to be deducted from any land tax payable by the designated beneficiary. In this case, no deduction will be available to the designated beneficiary as there is no land tax payable by the trustee.

Assessment of land acquired on or after 17 October 2019 (subsequent trust land)

Land acquired by a trustee of a discretionary trust on or after 17 October 2019 onwards will be taxed at the trust rates of land tax.

This applies even if the trustee has designated a beneficiary for pre-existing trust land.

Assessment of pre-existing trust land (land subject to a trust as at midnight, 16 October 2019) that is subsequently subdivided or amalgamated.

Land subject to a trust as at midnight, 16 October 2019, that is subsequently subdivided or amalgamated will continue to be considered pre-existing trust land.

Assessment of land tax on both pre-existing trust land and subsequent trust land

For discretionary trusts that own both pre-existing trust land and subsequent trust land, without a designated beneficiary in place, land tax is calculated using the trust rates of land tax on the total value of the land held on behalf of the trust.

For discretionary trusts that own both pre-existing trust land and subsequent trust land, with a designated beneficiary nomination in place, land tax is calculated by using the following formula that proportionally applies the general rates of land tax to pre-existing trust land, and the trust rates of land tax to subsequent trust land:

L = [(R1 * T) * (A / T)]  +  [(R2 * T) * (B / T)]

Where

L = Land tax assessed

R1 = General land tax rates

R2 = Trust land tax rates

T = Total taxable value of all land subject to the trust

A = Total taxable value of all pre-trust land

B = Total taxable value of all post-trust land.

Substituting a designated beneficiary

A designated beneficiary may be substituted:

  • if the designated beneficiary dies or becomes incapacitated; or
  • if the Commissioner is satisfied that, because of a marriage, de facto relationship or domestic relationship that has broken down irretrievably, the designated beneficiary will no longer be a beneficiary of the trust; or

in circumstances prescribed by the regulations. At the time of publication, there are no regulations. Should there be any regulations be made in regards to this point, this section will be updated accordingly.

The designated beneficiary for land tax purposes must:

  • be a natural person
  • be a beneficiary of the trust as at midnight, 16 October 2019
  • be over 18 years of age and
  • have verified by statutory declaration that they consent to being the designated beneficiary of the trust.

If all the beneficiaries of the trust are under 18 years of age, the trustee is able to be the designated beneficiary provided they are a natural person.

To substitute a designated beneficiary, the trustee must provide written notice to the Commissioner advising the Commissioner of the reasons for the substitution and the name of another beneficiary of the trust who is to be taken to be the new designated beneficiary. You may be requested to provide evidence, for example, death certificate, Decree Absolute or statutory declaration.

To substitute a designated beneficiary please complete the online Trust Notification Advice.

Withdrawing a designated beneficiary

If the notice of the designated beneficiary is withdrawn by the trustee, or where the designated beneficiary notifies the Commissioner, in writing, that they no longer consent to being the designated beneficiary (as opposed to where the designated beneficiary can be substituted), the trustee will not be able to later lodge another notice and will be liable for land tax at the trust rates of land tax.

The withdrawal of the notice will take effect, for the financial year following the date the notification is received.

To withdraw a designated beneficiary please complete the online Trust Notification Advice.