As of 1st January 2006 all land purchased in a trust became subject to a surcharge
on the ordinary rates of land tax of 0.375%. The impact of purchasing land in
a trust post 31st December 2006 needs to be understood by property purchasers.

Matt Walsh Chairman of REIV C&I Chapter said that it is fundamental for purchasers
to seek advice from their accountants to ensure the purchasing entity assists
the net returns from the property.

Mr Walsh said “the nomination of the trust beneficiaries has a direct impact
on tax liabilities.”

“Land tax has a bearing on properties that fall under the Retail Leases Act.
These typically include most retail and offices premises. Under the Act land
tax is not recoverable from the tenant. Therefore consideration toward the purchasing
entity could effect the possible returns achieved from a property.”

“To ensure clients understand the full range of benefits and pitfalls in the
purchasing of property REIV members are working closer with the accounting industry.

“The new regime can have a significant impact on land held in a trust. It
is important to talk to your accountant when purchasing land to advise you of
the best structure to suit your circumstances. Remember there are other issues
that may be more importance than land tax including Estate Planning, Capital
gains, GST and risk management,” Mr Walsh concluded.

The Victorian State Government classifies trusts into 4 main categories. These
are a Discretionary Trust, a Unit Trust, a Fixed Trust and an Excluded Trust.
Each type of trust needs to be looked at separately as they are treated differently
according to Andrew Farrawell from Caruso Accountants.

Mr Farrawell said that the surcharge will apply to all land in a Discretionary
Trust after 31st December 2005, unless there is a PPR beneficiary which will
be discussed further on.

The Trustee of a Unit Trust or a Fixed Trust that purchases land after 31st
December 2005 will be assessed on land tax with the surcharge. The only way
to avoid the surcharge is if the trustee notifies the State Revenue Office of
the Unit Holders and their proportion of the Units. The effect of the notification
is that land tax will be assessed to both the trustee and the unit holders at
the ordinary rate of land tax. The individual will then be assessed on their
total holding. Any land tax payable by the individual Unit holder will be reduced
on a proportionate basis by the land tax payable by the trustee.

For example, XYX Pty Ltd as trustee for ABC Unit Trust holds $600,000 of land
with 4 unit holders, one of whom has $1 million of other land holdings. The
other 3 have no other land holdings. If the trustee does not notify the SRO
of the unit holders the liability for land tax will be $3230 for the ABC Unit
Trust and $3680 for the individual with the other land holdings. If there is
notification the Unit trust will have a liability of $1180, The 3 Unit holders
will have no liability and the 4th individual will be assessed on $1,150,000,
a total liability of $4885 ($5180 less $295, being a deduction proportionate
to their 25% holding).

Excluded Trusts will not attract the surcharge rates. Excluded trusts include

• A Superannuation Trust
  
• A Trust established by Will
  
• A Charitable Trust
  
• A Concessional Trust
  
• A Public Unit Trust
  
• A Wholesale Unit Trust
  
• A Trust whose sole beneficiary is a club or its members.
  

Other types of exclusions from this new regime exist and include but are not
limited to

1. Where the nominated beneficiary of a discretionary trust uses the land
   as a Primary Place of Residence (PPR)
   
2. The land held in trust is exempt land. For instance, a caravan park.
   
   Notifications for land purchased in a Fixed or a Unit Trust must be done by the 31st of December in the year it is purchased.
   

Principle Places of Residence (PPR) are treated differently depending on the
type of trust that holds the land. A Fixed Trust has an exemption from land
tax if the beneficiary or beneficiaries occupy the land as their PPR. However
this must be apportioned if some of the beneficiaries do not occupy the land.

The trustee of a Discretionary Trust may nominate a beneficiary who lives
in the residence as a PPR beneficiary. After nomination the trustee will be
assessed at the ordinary land tax rates. Once the PPR beneficiary leaves the
residence the surcharge becomes payable.

The trustee of a Unit Trust which holds land occupied as a PPR by a unit holder can either:

1. Notify the SRO of all Unit Holders as above OR
   
2. 2. Nominate a unit holder who resides in the residence as a PPR beneficiary.
   

A PPR beneficiary can be nominated as well as a pre 31st December nominated individual. They do not have to be the same person. A PPR beneficiary can be made anytime but cannot be changed unless the person dies.

Total unimproved value	Ordinary 2006 land tax rates	Surcharge 2006 land tax rate	Difference
$0 - $19,999	Nil	Nil	Nil
$20,000 - $199,999	Nil	$75 + 0.375% over $20,000	$75
$200,000 - $539,999	$200 + 0.2% over $200,000	$750 + 0.575% over $200,000	$550
$540,000 - $899,999	$880 + 0.5% over $540,000	$2,705 + 0.875% over $540,000	$1,825
$540,000 - $899,999	$880 + 0.5% over $540,000	$2,705 + 0.875% over $540,000	$1,825
$1,190,000 - $1,619,999	$5,580 + 1.5% over $1,190,000	$9,843 + 1.875% over $1,190,000	$4,263
$1,620,000 - $2,699,999	$12,030 + 2.25% over $1,620,000	$17,905 + 1.706% over $1,620,000	$5,875
$2,700,000 + over	$36,330 + 3.5% over $2,700,000	$36,330 + 3.5% over $2,700,000	Nil