family unit trust

If you own property in a fixed unit trust, you may not be receiving the benefit of the land tax threshold in circumstances where Revenue NSW have assessed the trust as a “special trust”.

Section 3 of the Land Tax Management Act 1956 (NSW) (LTMA) provides that a trust is a “special trust” if the trust property includes land, the trustee of the trust is the owner of the legal estate in the land and the trust is not a fixed trust.

However, a trust will not be considered a “special trust” if it is a “family unit trust” in accordance with Schedule 1AA of the LTMA.

A family unit trust will be classified as a fixed trust and receive the land tax threshold if:

  1. the trust property includes land;
  2. the taxable value of that land does not exceed $1 million as at midnight on 31 December 2005;
  3. the unit holders in the unit trust have a fixed entitlement to income or capital; and
  4. the units in the unit trust are family-owned, that is, 95 per cent or more of the units are owned by the same family group.

However, it is important to note that where the trust acquires additional land after midnight 31 December 2005 that makes the combined taxable land over $1 million, the trust will be assessed as a special trust for the tax year following the purchase.

Example: Family Unit Trust entitled to land tax threshold

Jo Lee Pty Ltd as trustee for the Jo Lee Unit Trust owns a property in Chatswood.

The taxable value of the property is $900,000 as at 31 December 2005.

The unit holders of the Jo Lee Unit Trust are Jo and Lee, who each hold 50 units in the Jo Lee Unit Trust.

Jo and Lee are members of the same family as they are married to one another.

Jo and Lee are entitled to a fixed proportion of the income or capital distributions of the Jo Lee Unit Trust based on the number of units owned by them and their entitlement to the income or capital of the Jo Lee Unit Trust cannot be removed, restricted or otherwise affected by the exercise of a discretion, or by a failure to exercise a discretion, conferred on any person under the trust deed.

The Jo Lee Unit Trust is a fixed trust for land tax purposes as it is a family unit trust in accordance with Schedule 1AA of the LTMA and the Jo Lee Unit Trust is entitled to the land tax threshold.

If you or someone you know has received a letter from Revenue NSW or a land tax assessment notice which sets out that a unit trust has been assessed as a “special trust”, contact our experience tax and trust lawyers on 9964 0499 to discuss your options and eligibility for a family unit trust concession.

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