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 at midnight on 16 October 2019 (being the prescribed time);
- if the land was subject to a trust as at midnight on 16 October 2019, whether there is a designated beneficiary in place; and
- whether the land constitutes the principal place of residence for the trustee or the designated beneficiary.
Land subject to the trust as at midnight on 16 October 2019 (pre-existing trust land)
Land subject to a trust as at midnight on 16 October 2019 and held by a trustee of a discretionary trust will be taxed at trust rates of land tax, unless the trustee lodges with RevenueSA a written notice specifying one (1) beneficiary of the trust who is taken to be the designated beneficiary of the trust.
If there is a designated beneficiary in place, 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).
If there is no designated beneficiary, or the designated beneficiary notice is lodged after 31 December 2021, or if the designated beneficiary notice is withdrawn by the trustee or the designated beneficiary, the trustee is assessed at the trust rates of land tax.
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 on 16 October 2019.
A trustee of a discretionary trust may only nominate one beneficiary who will be taken to be the designated beneficiary for that trust.
The deadline for nominating a designated beneficiary for pre-existing trust land is 31 December 2021.
Once this deadline has passed, RevenueSA will not accept late notices of designated beneficiaries.
The notice will take effect at the option of the trustee for either the tax year in which the notice is lodged or for the following year.
A designated beneficiary for land tax purposes must:
- be a natural person
- be a beneficiary of the trust as at midnight on 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.
The trustees of discretionary trusts will only be able to nominate a designated beneficiary for land tax purposes for land that the trustee owned, on behalf of the trust, as at midnight on 16 October 2019, with the land then being assessed at the general rates of land tax. A designated beneficiary notice will continue where there is a change of trustee(s) (that is, the trustee(s) has been replaced, an additional trustee has been added, or one removed).
Any land that becomes subject to a discretionary trust from 17 October 2019 onwards will be assessed at the higher trust rates.
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.
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.
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 nominate, substitute or withdraw a designated beneficiary please complete the online Trustee Notification Advice.
Where a trustee has nominated a designated beneficiary, the land subject to the trust 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.
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 his or her 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.
- a trustee of a discretionary trust held land as at midnight 16 October 2019 but does not nominate a designated beneficiary by 31 December 2021; or
- land becomes subject to a discretionary trust from 17 October 2019 onwards;,
- 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
A discretionary trust with pre-existing trust land and a designated beneficiary notice in force will be assessed in 2 stages.
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.
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 notice of assessment.
A designated beneficiary can find their deduction on their notice of assessment.
Land acquired from 17 October 2019 onwards (subsequent trust land)
Land acquired by a trustee of a discretionary trust from 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.
Pre-existing trust land (land subject to a trust as at midnight on 16 October 2019) that is subsequently subdivided or amalgamated.
Land subject to a trust as at midnight on 16 October 2019, that is subsequently subdivided or amalgamated will continue to be considered pre-existing trust land.
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)]
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.