For land tax purposes, a unit trust is an arrangement made for the purpose, or having the effect, of providing facilities for participation by a person, as a beneficiary under the trust, in any profit or income arising from the acquisition, holding, management or disposal of property under the trust.
Beneficiaries of a unit trust are generally called unitholders and are entitled to trust funds in proportion to their unitholdings.
A unit trust does not include an excluded trust.
Taxing unit trusts
A trustee of a unit trust has 2 options which are to:
- notify RevenueSA of all the unitholders of the trust and pay land tax at the general rates of land tax; or
- not notify RevenueSA and pay land tax at the trust rates of land tax.
Effect of notifying of unitholders
By notifying RevenueSA of the unitholders:
- both the unitholders and the trustee will be considered owners of the land held by the trustee on behalf of the trust; and
- the trustee will be assessed at general rates of land tax.
Each unitholder will be treated as if they own a percentage of the trust land which is equal to the number of units they hold as a fraction of the total number of units of the trust.
The notification of unitholdings 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 unitholdings while a notification of unitholdings 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The notification remains in force until it is withdrawn by the trustee. If the notification is withdrawn, the trustee will not be able to lodge another notification and is liable for land tax at the trust rates of land tax.
Unlike discretionary trusts, a unitholder cannot withdraw a notice of unitholders.
Principal place of residence exemption for unit 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 unitholders 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 unitholders 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 unitholders 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 unitholders.
If those conditions are met, the land that is occupied by all of the unitholders 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 unitholders.
However, once a notice is withdrawn, the unitholders 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 PPR exemption on the basis that it is the unitholders’ principal place of residence. Land tax will then be assessed against the land, using the trust rates of land tax.
Assessing unit trusts with notified unitholders
Unit trusts that have a notice of unit holdings in force will be assessed in 2 stages:
Stage 1 - Assessing the trustee of the unit trust
The trustee of the unit trust will be assessed at the general rates.
All land held by the same trustee for the same trust, including any portion of land held by that trustee on behalf of 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 unitholders
Each unitholder will be assessed land tax based on their interest in all land they own, including any land held on behalf of a trust in which they are a unitholder.
The unitholder’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 unitholder 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 for the unitholder.
If a unitholder does own other taxable land (unless they in turn are a trustee, see further below), they will be assessed at the general rates on the aggregated value of their proportionate interest in the trust held land (equal to their proportionate share of unitholdings in the trust) and any other taxable land they own. This includes land they own by themselves or jointly with others.
If a notified unitholder is the trustee of another trust, it will be treated as a beneficiary-trustee. This is discussed further below.
To avoid double taxation, any land tax assessed against the trustee in respect of land held on behalf of the unit trust is to be deducted from land tax assessed against the unitholder(s). The deduction is applied to the total land tax assessed for the unitholder(s) and not just to the land tax assessed for the land subject to the unit trust.
This deduction is equal to the unitholder’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 unitholder below zero.
If, after the trust deduction, a unitholder is not liable for land tax, they will not receive a notice of assessment.
A unitholder can find their deduction on their notice of assessment.