QLD Land Tax for Trusts

[jrc77]

I was under the impression that trusts in QLD get their own land tax free threshold of $350k. I have seen it commented on Somersoft that this is a reason why when buying in QLD it could be worthwhile setting up each property bought in it's own trust.

However, just came across this on the QLD Treasury department website:

Land held under different trusts will be assessed together for the purposes of land tax if the:
trustee is the same for all the trusts
beneficiaries are the same for 2 or more of the trusts
beneficiaries have the same interests in those trusts when land tax is calculated.
These types of trusts are known as ?cloned trusts?.

And then reading section 4 of "LTA020.1.1?Assessment of trustees under section 20 of the Land Tax Act 2010" from https://www.osr.qld.gov.au/legislation-rulings/public-rulings/land-tax/lta020-1.shtml it seems that the trustee would be liable for land tax on the total taxable value of all taxable land that is subject to those "cloned" trusts.

However it seems companies do also get the land tax free threshold of $350k - so does the land tax get assessed for the trustee - which if is a corporate trustee, then gets the threshold? So if each trust had it's own corporate trustee then each unit trust effectively gets the threshold?

Regards,

Jason

 

[Terry_w]

I was under the impression that trusts in QLD get their own land tax free threshold of $350k. I have seen it commented on Somersoft that this is a reason why when buying in QLD it could be worthwhile setting up each property bought in it's own trust.

However, just came across this on the QLD Treasury department website:



And then reading section 4 of "LTA020.1.1?Assessment of trustees under section 20 of the Land Tax Act 2010" from https://www.osr.qld.gov.au/legislation-rulings/public-rulings/land-tax/lta020-1.shtml it seems that the trustee would be liable for land tax on the total taxable value of all taxable land that is subject to those "cloned" trusts.

However it seems companies do also get the land tax free threshold of $350k - so does the land tax get assessed for the trustee - which if is a corporate trustee, then gets the threshold? So if each trust had it's own corporate trustee then each unit trust effectively gets the threshold?

Regards,

Jason

Each trust would be different, not identicle...

 

[WilliamB]

Jason this is my understanding.

1. Property held by individual has a threshold of 600k and is considered separately.
2. Property held by multiple trusts with the same individual trustee is considered cumulatively, and has a threshold of 350k. That is, if you have one property with 500k UCV held by "Person 1 ATF Trust 1" and another property with 500k UCV held by "Person 1 ATF Trust 2", then 1mil is the taxable value against Person 1. Ouch.
3. One way to avoid this is to have Company 1 ATF Trust 1, Company 2 ATF Trust 2 etc etc, as each Company is considered separately, with a threshold of 350.

I discussed this with my accountant today so hopefully it is correct.

My structure is a bit "shoot from the hips" due to poor planning on my behalf and moderately quick acquisition over the last 12 months but I am working on correcting it presently.

I hold a number of properties across "WilliamB", "WilliamB ATF Trust 1", "WilliamB ATF Trust 2" and "WilliamB ATF Trust 3" and I am staring down the barrel of a rather large land tax charge as a number of builds I had planned got delayed and it's looking like I will still hold the completed builds at June 30. No need to tell me, yup this was stupid from the beginning.

I am currently reviewing setting up a new trust with corporate trustee to purchase a new property, and then slowly adjusting Trust 1 through 3 to separate (newly created) corporate trustees as I sell the properties owned by each. I might get lucky and offload a few before June 30, but will see how I am going in March and decide whether to attempt through my solicitor to change trustee etc without incurring stamp duty to a better setup early. I am certain the legal fees will be less than the tax.

I believe going forward I will hold 3 - 4 trusts each with it's own corporate trustee, with the goal to cycle each as I buy and sell to minimise land tax, along with other risks.

From what I understand (from the gurus here) there are many other solid reasons to have Corporate trustee as opposed to individual - secure asset protection and estate planning to name a couple.

Happy (thankful) to be proven wrong or be told "hey d*ckhead you're doing it wrong" on any of the above, as I will be looking to begin this process soon.

Hopefully not too far off topic

 

[jrc77]

My reading of the QLD Land tax rules correlates with what you are saying - bad luck on that.

If I go down the trust path, I expect I will go with each property owned by a unit trust, with the units held by a discretionary trust. Ie:

Property Trustee 1 Pty Ltd ATF Property Unit Trust 1
Property Trustee 2 Pty Ltd ATF Property Unit Trust 2
Property Trustee 3 Pty Ltd ATF Property Unit Trust 3
...

all units held by:
Mr JRC77 ATF My Family Trust

Regards,

Jason

 

[Terry_w]

Jason,

That should do it because each trustee is different. The benenciaries would be identicle though, but that still allows the trustee to be assessed as if this is the land owned is their only land.

Another potential way is to have one company as trustee of multiple trusts which are not the same. e.g. a unit trust with different unit holders or a discretionary trust with different beneficiaries.

 

[Paul@PFI]

Then there is also the QLD Duty Problem that if any of the Trusts are amended or change unitholders it can trigger an indirect duty problem.

Tread carefully with trust changes in QLD.

 

[RPI]

Another reason for Corporate Trustees.

JRC, interested to know your reasoning for holding in unit trusts and then having units held by DT? This is not saying there is a better way but am always interested in people's reasoning.

Paul, agree transfers of units and stamp duty is painful in QLD. Unit trust would make a great vehicle for non related parties to conduct business through if it wasn't for that. Makes company structure more attractive for ventures not involving land holdings. Maybe it's just me, but I much prefer paying 30% tax through my bucket company after it has been through the trusts holding units from a venture than paying 30% upfront and working on franking credits for beneficiaries that are sub<30% taxpayers. I still like unit trusts for ventures with a definitive end (ie SPV for development) so that the likelihood of needing to change or take on additional unit holders is minimal.

 

[jrc77]

Paul/RPI,

Actually it's timely you updated this thread.

I was originally thinking of the unit trust with units held by discretionary trust route as:

1. I already have the discretionary trust setup (use it for shares currently). So no additional cost for the extra trust.
2. This setup on initial glance seemed to give maximum flexibility (being able to distribute income/capital gains, able to transfer units in future etc)
3. Various points from "http://somersoft.com/forums/showthread.php?t=89302" sounded like they could have advantages. In particularly transferring the units into a SMSF at a later point.

However when discussing with a few different advisers I became aware that duty may be payable when transferring the unit holders (ie. changing the beneficial owners) for a trust that holds property in QLD (even if the trust is stamped in NSW).

Additionally in my instance the ability to negative gear through the unit trust (ie. borrowing the buy the units) is not necessary as I have other income in a trust that can be distributed to offset any initial losses.

This seems to negate a lot of the benefits of a unit trust for me, and hence probably not worth the additional complexity it brings.

Hence I am now favouring a simpler discretionary trust (with corporate trustee) setup.

As opposed to holding in personal names, I will have:

1. Flexibility to distribute income/capital gains in the future
2. Asset protection
3. Have ability to effectively pass the property on to my children (by them taking over the trustee company)

while still being able to offset any initial losses (due to having income in other trusts that can be distributed to it).

Regards,

Jason

 

[RPI]

Thanks for the detailed response Jason

 

[Paul@PFI]

Paul/RPI,

In particularly transferring the units into a SMSF at a later point.
DONT EVER DO THIS - Its prohibited to transfer (related party acquisition) and it might also trigger stamp duty.
Smart advice is usually to redeem THEN issue new units. However get advice before doing this as there are many conditions that must satisfy Reg 13.22 C &D. of The SIS regulations.

Additionally in my instance the ability to negative gear through the unit trust (ie. borrowing the buy the units) is not necessary as I have other income in a trust that can be distributed to offset any initial losses.

Hmmm...Did you get advice ?? The Commissioner takes a dim view of schemes which allow losses to offset profits of other ventures. Its complex. I'm not suggesting you can't its just too many people jump into a scheme trying to offset a loss against some other profit. ATO can disallow the loss and upset it all. Trust loss rules and non-commercial loss rules + Part IVA anti-avoidance just some of the issues