I recently spoke with a customer on the Cleardocs helpdesk on the topic of the Cleardocs fixed Unit Trust and liability of the trustee to pay land tax in NSW.
Their query centred on whether the deed took into account the additional criteria introduced in 2014, but concerned other areas too.Sharee Darwinkel, Maddocks Lawyer
Yes. Your Cleardocs Unit Trust can be a fixed trust for NSW land tax purposes.
Cleardocs customers who have set up a unit trust and selected that it should be a 'fixed trust' for the purposes of NSW land tax receive a deed which takes into account all the relevant criteria to attract the tax free threshold under the law .
Yes. The Cleardocs unit trust deed satisfies the criteria as it does not allow the trustee to issue more than one class of units and the proportional entitlements of unit holders to capital and income are fixed according to the units held.
Yes. Unit trusts which were not established to satisfy the criteria of a fixed trust and wish to hold land in NSW should have their trust deeds reviewed and amended if necessary in order to benefit from the tax free threshold.
Trustees need to think carefully about the other consequences of amending a deed which already owns assets (including the risk of resettlement, and any negative stamp duty and GCT consequences).
In all cases you should consider applying for a private ruling from the Commissioner concerning a unit trust, for the following reasons:
To assist you the Cleardocs fixed unit trust document package includes a pre-forma letter applying for such a private ruling.
The unitholders of a unit trust which holds property in NSW will be entitled to a tax free threshold if the trust is defined under the Land Tax Management Act 1956 (NSW) (Act) as a fixed trust. Trusts which do not meet the definition of a fixed trust will be considered a special trust and will not be entitled to the tax free threshold.
If a trust can satisfy the tax free threshold, then $482,000 of the value of the trust's property is disregarded for the assessment of land tax. The amount of tax then paid is $100 and 1.6 per cent of the land value between the threshold and the premium rate threshold ($2,947,000) and 2 per cent thereafter.
Prior to 2014, to be considered a fixed trust the criteria required that the unit trust's beneficiaries be presently entitled to:
On 20 May 2014 amendments to the Act introduced additional criteria a unit trust must satisfy before it will be considered a fixed trust and attract the tax free threshold.
The additional unit trust criteria are:
In practice, the Commissioner considers that for the trustee of a unit trust to comply with the criteria, the trustee must not be able to:
The criteria removes a number of the usual discretions provided to trustees under a typical fixed unit trust. These restrictions can have important ramifications for trustees, for instance:
For more information, contact Maddocks on (03) 6258 3555 and ask to speak to a member of the Tax and Revenue or General Commercial teams.
You can read earlier ClearLaw articles on a range of trust matters.
 Land Tax Management Act 1956 (NSW).
Daniel is a lawyer in the Maddocks Tax & Revenue team.Daniel advises extensively in the following areas:
His advice covers both direct and indirect tax considerations.
Prior to joining Maddocks, Daniel worked at a Big Four Chartered Accounting Firm focusing on tax consulting for mergers and acquisitions.
The legal information and commentary on this site is general only. Documents ordered through Cleardocs affect the user's legal rights and liabilities. To assess their suitability for the user, legal accounting and financial advice must be obtained.
For more information, contact Maddocks on (03) 9258 3555 and ask to speak to a member of their team.