Multiple trusts to reduce land tax--Legal?

[padraig]

I have a query on the practice of setting up new trusts to legally reduce land tax liabilities. A search of the forum indicates this is a method used by several property investors. I have just got off the phone with a prominent trusts specialist located in Sydney. He advised me that in NSW a trust unit holder (be it an individual or discretionary trust) is assessed as secondary landowner and therefore has to pay the land tax (the unit holder receives credit for land tax paid by trust, ensuring there is not a double land tax hit).

Two scenarios:
1) $2M dollars worth of land owned by one trust 'X', with all units held by one individual (or other entity) 'A'
2) $1M dollars worth of land owned by trust 'X' and $1M dollars worth of land owned by trust 'Y', with all units in both trusts held by one individual (or other entity) 'A'

My interpretation of NSW legislation is that individual (or other entity) 'A' is assessed as secondary owner of land valued at $2M dollars in either scenario, and is liable to pay the same land tax in either scenario.

If the above is true, it would appear that there is no benefit in setting up a new trust to reduce land tax liabilities (if the unit holder is the same person or entity in all trusts). Only way to avoid land tax is by non-disclosure, and I definitely don't want to go down this road.

Would Dale or Steve N have any comments on this?


Padraig

PS: I am located in WA, and I'm not sure if the legislation in WA or other states is the same as in NSW

 

[geoffw]

My understanding is that it is something which varies enormously by state.

I have a property in NSW which gets taxed a lot more than if I held it privately, because a trust gets taxed at a substantially higher rate than an individual (if the individual's total land holding falls under a threshold).

I've heard that in Victoria land tax can be reduced by multiple trusts- I don't know if that's right. I don't know about WA.

 

[buzzlightyear]

Recent case in Victoria (refer to attachment)

 

[Ebbie]

I'm not sure about Unit trusts but maybe it's different for hybrid or discretionary trusts? I haven't tried this myself but have always believed different trustee companies can be used to avoid the OSR imposing land tax on the combined value of all properties. You need to be careful because even with different companies as trustees they can still be grouped together for land tax purposes if they all have the same shareholders and directors.

 

[skater]

I don't know about multiple trusts, but in my situation I get 2 land tax bills. One for the properties that are in my personal name and a second for my discretionary trust. I have a corporate trustee. Like Geoff mentioned, the tax for the trust is much higher than the tax for personal names.

 

[DaleGG]

HI

Indeed, each State does have differing rules with regard to Land Tax which makes this an awkward question to answer effectively and accurately for you.

I know that in NSW, a trust pays land tax on every dollar of land value within the trust.
In Victoria, a trust is entitled to an exemption just like an individual.

I do not know the laws in WA well enough to comment upon.

Perhaps it is worth discussing this issue with your own solicitor and accountant. There may be legal savings from carefully structuring your affairs in this way....

Dale

 

[see_change]

In Queensland , each trust has it's own land tax free threshold, so this makes setting up seperate trusts a worthwhile exercise.

See Change

 

[Sultan of Swing]

My solicitor has advised me that in Tasmania all trusts controlled by one entity are grouped and taxed accordingly.

 

[austini]

And in ACT you pay Land Tax on every dollar.

Cheers - Gordon

 

[padraig]

I've been checking with different people here in WA (mainly accountants) --several conflicting views available. The OSR person I spoke with seemed a little unsure of the subject. I've decided to bite the bullet, spend the money on setting up a new trust to purchase a new property. Hopefully the OSR will in time confirm that each trust is entitled to its own exemption.

Thanks for your feedback

Padraig

 

[Pete]

Padraig,

You wrote, regarding WA

each trust is entitled to its own exemption

This is my understanding too.

regards,

 

[NickM]

Padraig
in NSW there is no advantage to establishing multiple trusts to minimise land tax.
No threshold so no advantage. OSR will assess each entity based on its primary or secondary ownership.

As far as i know Qld is fine to set up multiple trusts

Regards
nick M

 

[XBenX]

Hi Padraig,

The people that you have read about, as others have indicated - would be operating in QLD.

Cheers,

XBenX

 

[simonjulie]

Hi All
Trying to get around taxes is good if it can be done in a streamlined, cost effective way but IMHO, the financial pressures that are inflicted on landlords is all just part of the property cycle. Think about it, when they abolished Neg/gearing back in the 80's the investors fled the market leaving only the cleaver ones to reap the rewards of staying in for the long haul.
It's all just a phase of the growth cycle.
Kind regards
Simon

 

[geoffw]

leaving only the cleaver ones to reap the rewards

Those would be the ones who got the first cut?

 

[simonjulie]

Ha Ha!!!!!
I todl yuo I coodunt spel
Somin

 

[geoffw]

I todl yuo I coodunt spel

Being The saucerer's apprentice. I should be able to "spell".