Land Tax

Land held on behalf of two or more family trusts – aggregation principle

On 25 February 2016 the Commissioner of State Taxation issued Revenue Ruling LT004 which seeks to clarify the operation of section 13(3)(b) of the Land Tax Act 1936 (Act) and, in particular, the circumstances in which land will be considered to be held in trust for the same beneficiary.

Section 13(3)(b) provides a qualification to the aggregation principle.  The “aggregation principle” is the principle under which the taxable value of all land owned by the same taxpayer is aggregated for the calculation of land tax (refer sections 2(1) and 8B of the Act).

The scheme of the Act is such that trusts are not recognised as an owner of land.  Instead, the trustee of the trust is the owner, and therefore taxpayer, in respect of land held in its trustee capacity.  Under the aggregation principle, all land held by a person as trustee, even as trustee of separate trusts, would therefore be aggregated for land tax.  The purpose of section 13(3)(b) is to ensure that the aggregation principle does not apply to aggregate land held on trust for different beneficiaries.

Essentially the section provides that if land is held on trust, notice of the trust is given as required by regulation and the trustee is the taxpayer for the land, the taxable value of the land will not be aggregated with the taxable value of other land owned by the same trustee/taxpayer unless the other land is held in trust for the same beneficiary.

There has long been debate as to when land will be considered to be held in trust for the same beneficiary, particularly in the context of discretionary trusts where it is generally accepted that no beneficiary has an interest in any of the assets of the trust but rather only the right to be considered by the trustee when exercising its discretion.  In this situation, it is arguable that the assets of the trust are not held “in trust” for any beneficiary and therefore the aggregation principle cannot apply, even if the defined class of beneficiaries of two discretionary trusts are the same or substantially the same.  In other words, the expression “the same beneficiaries” can only refer to persons or entities who have a beneficial interest in the assets of the trust.

The Commissioner in LT004 has taken a different view, stating that the word “beneficiary” is to be read as including “beneficiaries” and treating the property of a discretionary trust as being held in trust for all persons within the class of potential beneficiaries of the trust.  Importantly, the Commissioner states that where the trust has different income and capital beneficiaries, it is the capital beneficiaries that must be the same.  Further, he considers the identity of any default beneficiary or takers in default, i.e. persons in whom the assets or income of the trust will vest in default of the trustee exercising its discretion in favour of another person or persons, to be irrelevant.

This means that where two separately settled trusts have the same general class of beneficiaries and the same trustee, the land held in those trusts will be aggregated by the Commissioner for land tax purposes, potentially resulting in a substantially higher land tax liability.

It has been common practice where persons hold multiple land assets with significant values to have each parcel held under a separate trust, albeit for the same beneficiary class and usually, for commercial convenience, with the same trustee.  In these situations, the Commissioner will, on the views expressed in LT004, now seek to aggregate these land holdings.

In order for the exception in section 13(3)(b) to apply, the taxpayer must demonstrate to the Commissioner that the beneficiaries of each trust are different.  As it is the wider class of beneficiaries that the Commissioner claims is relevant (not simply as the contrary argument requires, an identified same beneficiary or beneficiaries in whom interests in the respective lands are vested) merely naming a different (but related) primary or specified beneficiary in each trust may not be enough to create different beneficiaries if the definition of the beneficiary class is such that the same persons qualify as beneficiaries of both trusts.  This is not always the case, however, and an analysis of the terms of each trust may reveal differences in the potential beneficiary class in which case section 13(3)(b) would apply.

DW Fox Tucker can assist affected taxpayers in reviewing the application of the aggregation principle to their individual circumstances, applying to the Commissioner for de-aggregation of two or more trusts and as to whether holding can be restructured to prevent aggregation.  In this regard there are anti-avoidance provisions in the Taxation Administration Act 1996 which will potentially prevent a restructuring predominantly for this purpose.

For more information, please contact:
William Esau

William Esau
p.  +61 8 8124 1955
e.  Email me

Briony Hutchens

Briony Hutchens
p.  +61 8 8124 1821
e.  Email me

This communication provides general information which is current as at the time of production. The information contained in this communication does not constitute advice and should not be relied upon as such. Professional advice should be sought prior to any action being taken in reliance on any of the information. Should you wish to discuss any matter raised in this report, or what it means for you, your business or your clients' businesses, please feel free to contact us.

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