Land tax in Victoria is an annual tax imposed on the total taxable value of all land owned in Victoria at midnight on 31 December of the year preceding the year of assessment. Land tax has become an area subjected to vast legislative changes over the last few years. This rate of change has continued, despite the introduction of the Land Tax Act 2005 (“LTA”), with frequent alterations since it came into operation on 1 January 2006.

The New Regime

With limited exceptions, the LTA introduced a land tax surcharge to apply to Victorian land held in trusts (other than excluded trusts).
Excluded trusts include:

• a charitable trust;
• a concessional trust, (a trust created for the benefit of a person(s) with a disability);
• a public unit trust scheme;
• a trust the sole beneficiary of which is a non-profit society, club or association;
• a trust established under a Will;
• a superannuation trust (a complying superannuation fund).

The surcharge is 0.375% and applies to land with an unencumbered value of between $20,000 and $2.7 million. Land valued at more than $2.7 million incurs no land tax surcharge, however ordinary land tax rates will be applied.

Principal Place of Residence and Testamentary Trusts

Land owned by a natural person that is used or occupied as their principal place of residence (“PPR”) is, and continues to remain,
exempt from land tax. The PPR exemption also extends to trustees of certain trusts created in a Will (excluding discretionary and unit trusts created by a Will) for 3 years from the date of the testator’s death (unless the Commissioner approves the period be extended).
These circumstances include situations of land owned by a trustee of a fixed trust where:

• the property is transferred under a Will to an Executor who occupies the property as their PPR and holds the property on trust for themselves and others under the terms of a Will;
• the property is held by a trustee appointed under a Will on trust for all beneficiaries who reside in the property as their PPR;
• the property under a Will is vested in a trustee on trust for a life tenant who uses the property as their PPR;
• the property is occupied by a natural person who is granted a right to reside under a Will;
• the property is owned by a trustee of a fixed trust to the extent that a beneficiary of the trust occupies
  the property as their PPR.
• Where more than one beneficiary is specified, and not all the beneficiaries reside at the property,
  land tax is assessed on proportional basis, providing an exemption to the share of the
  resident beneficiaries.
• The application of the land tax provisions to testamentary trusts will require careful
  planning when preparing a Will.
  
  

Next Page >