Shifting views on Victorian Land Tax trust provisions

Is a custodian trustee or beneficiary liable for land tax?

The VCAT decision of Caloutas as trustee for Caloutas Family Trust v Commissioner of State Revenue [2025] VCAT 82 (Caloutas) considered the Victorian land tax trust surcharge provisions and their application in respect to bare or fixed trusts.

The decisions focused on the question of land ownership for the purposes of land tax, particularly, where a person holds property on bare or fixed trust for the benefit of a trustee of a family trust.

In Victoria, this is especially relevant for superannuation funds with limited recourse borrowing arrangements in place, given that such arrangements specifically require the subject land to be held on bare or fixed trust.

Background

The decision involved the Caloutas family and the Caloutas Family Trust (Family Trust) of which the mother, father and two sons were trustees.

In their capacity as trustees of the Family Trust, the trustees owned various properties. For the purposes of land tax, the Commissioner of State Revenue (Commissioner) undertook an investigation into the land held by the trustees. Following their investigation, the Commissioner reassessed the trustees of the Family Trust for the 2014, 2015 and 2016 land trust years to also include the following additional properties:

• a motel in the name of the trustees;

• a house in the name of one of the sons; and

• a petrol station comprising of three separate lots which the mother was the registered proprietor of two of the lots and the mother and the father of the other lot.

The trustees did not dispute that the motel was held by them in their capacity as trustees for the Family Trust and consequently, should be aggregated with the other properties of the Family Trust. However, the trustees did not agree with the decision of the Commissioner to treat the house and petrol station in the same way. They argued that these two properties were not assets of the Family Trust.

Relevant Legislation

The Land Tax Act 2005 (Vic) (Land Tax Act) contains specific provisions on how trusts are to be assessed for land tax purposes. In most cases, trustees are required to pay land tax at the trust surcharge rate.

However, a trustee has the ability to nominate beneficiaries of a bare or fixed trust. This allows the trustee to pay land tax at the general rates, rather than have the surcharge rate apply. The nominated beneficiary is taxed separately at its marginal land tax rate and receives a credit for the land tax paid by the trust.

It is also important to note that for the purposes of land tax, trusts are taxed separately, rather than being aggregated.

Land Tax Act 2005 (Vic)

The provisions relating to the general land tax surcharge for trusts are contained in subsection 46A(1)-(2) of the Land Tax Act, which provide:

(1) A person who is the owner of land as trustee of a trust is liable for land tax on the land at the applicable rate set out in Part 3 of Sched. 1.

(2) The trustee is to be assessed for land tax on the whole of the land subject to the trust as if the land were the only land owned by the trustee.

Subsections 46B(1), (4) and (5) of the Land Tax Act relate specifically to fixed or bare trusts where the Commissioner is notified of a beneficial interest. In summary, these subsections provide that if such notice is in force, the beneficiary is deemed to be the “owner” for land tax purposes. The beneficiary is then assessed for land tax on that land together with any other land they may own. The trustee is assessed for land tax on all property of the trust. To avoid a situation of double taxation, the beneficiary receives a credit for land tax paid by the trustee.

VCAT Decision

In reaching its decision, VCAT Senior Member Tang AM, concluded that the family members were holding each of the additional properties on bare or fixed trust for the trustees of the Family Trust and in turn held their interests in the additional properties on the terms of the Family Trust. The position taken by Senior Member Tang AM was that there were two trusts, namely, the bare or fixed trust and the Family Trust.

Notably, this was contrary to the position of both the Commissioner and family members. The Commissioner took the view that the additional properties were held directly on trust for the Family Trust. The family on the other hand, maintained that the additional properties were not assets of the Family Trust.

It was also held that the respective family members were “owners” of their relevant properties for the purposes of paragraph 10(1)(a) of the Land Tax Act. Additionally, as the beneficiaries of the bare or fixed trusts, the trustees had entitlements to the relevant properties by way of a freehold estate in possession and therefore were “owners” under paragraph 10(1)(a) of the Land Tax Act.

Consequently, it was further held that the Land Tax Act provides that were multiple parties are taken to be the owner of the land subject of a trust, only one party is to be assessed for land tax. If both are assessed, then one party is to receive a credit to avoid a situation of double taxation. In this regard, the Commissioner is afforded discretion as to whom to assess, but such discretion ought to be exercised in manner consistent with the Land Tax Act.

However, VCAT has the power to intervene and review decisions of the Commissioner to reach the correct or preferable decision, and in this instance, Senior Member Tang AM concluded at paragraph 10(g) of the decision that:

In all the circumstances, the correct or preferable decision would have been to assess the Registered Proprietors as trustees of the bare or fixed trusts for the Trustees (rather than the Trustees themselves) as this is more consistent with the scheme of the Land Tax Act: namely that, at least in the ordinary case, the trustees and beneficiaries are effectively permitted to elect who gets assessed by making (or failing to make) a nomination as to the beneficial interests in the land.

Implications for bare trusts

The decision has broader implications for structures where a bare trust holds land upon trust for another person or entity, such as a family trust or superannuation fund. The decision emphasised that each trust relationship should be treated separately for the purposes of land tax, notwithstanding the discretion of the Commissioner.

Essentially, properties held on bare trust for a beneficiary are, for the purposes of land tax, to be treated separately from the beneficiary’s other land holdings. This is unless a notification to the Commissioner has been made as to the beneficial owner.

For further information please contact:

Alasdair Woodford
Principal
T: 03 5225 5217 | M: 0436 456 144
E: awoodford@ha.legal

Tayla Berger
Senior Associate
T 03 5226 8559 | M 0407 825 365
E tberger@ha.legal

Joseph Flanagan
Senior Associate
T: 03 5226 8504 | M 0491 307 550
E: jflanagan@ha.legal