Is a custodian/bare trustee or a beneficiary liable for land tax?

The Victorian Civil and Administrative Tribunal decision of Caloutas as trustee for Caloutas Family Trust v Commissioner of State Revenue [2025] VCAT 82 has considered the interaction of bare or fixed trusts and the Victorian land tax trust surcharge provisions.

The case considered the question of who is an owner for land tax purposes, where a person holds a property on bare or fixed trust for the benefit of a trustee of a family trust.

This has a wide impact in Victoria, particularly for superannuation funds holding properties under limited recourse borrowing arrangements (which are required to hold land via bare trusts).

Background

A father, mother and their two sons were the trustees of the Caloutas Family Trust (the Family Trust).

The family members held various properties in their capacity as trustees of the Family Trust at the relevant times.

In addition to the properties held through the Family Trust, after an investigation, the Commissioner of State Revenue reassessed the trustees of the Family Trust for the 2014, 2015 and 2016 land tax years to also include for land tax purposes:

a motel held in the names of the trustees;
a house held in the name of one of the sons; and
a petrol station with the father and mother registered as owners of one lot and the mother registered as sole proprietor of the remaining two lots.

The trustees accepted that the motel was held in their capacity as trustees of the Family Trust and therefore should be aggregated with the other Family Trust properties.

The ownership of the house and petrol station land was in dispute. In particular, the family members argued that these were not held as part of the assets of the Family Trust.

Legislation

The Land Tax Act 2005 (Vic) (the Land Tax Act) contains special provisions dealing with trusts.

Trustees typically have to pay land tax at the higher trust surcharge rates. However, each trust is taxed on a stand-alone basis.

A trustee is able to nominate the beneficiaries of a fixed or bare trust (or unit trust). If a notification is made, the trustee pays land tax at the lower general rates and the beneficiary is separately taxed at its marginal land tax rates (with a credit for land tax paid by the trust).

Subsections 46A(1)-(2) of the Land Tax Act provide:

General land tax surcharge for trusts

(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):

Land tax for fixed trust if beneficial interests notified to Commissioner

(1) A trustee of a fixed trust to which land is subject may lodge with the Commissioner a written notice of the beneficial interests in the land.

…

(4) If a notice is in force under this section for a fixed trust—

(a) a beneficiary of the trust is deemed, for the purposes of this Act other than Division 1 of Part 4, to be the owner (but not to the exclusion of the trustee) of land subject to the trust … and is to be assessed for land tax on that land accordingly, together with any other taxable land owned by the beneficiary…; and

(b) the trustee of the trust 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.

(5) There is to be deducted from the land tax payable by a beneficiary under subsection (4)(a) an amount (if any) necessary to avoid double taxation …

VCAT Decision

Tang AM, Senior Member held that:

the son held the house on a bare or fixed trust for the trustees of the Family Trust;
the father and mother held their petrol station lot on a bare or fixed trust for the trustees of the Family Trust;
the mother held her petrol station lots on a bare or fixed trust for the trustees of the Family Trust; and
the trustees in turn held their interest in those properties on the terms of the Family Trust.

This analysis resulting in two trusts (ie the bare trusts and the Family Trust) was contrary to the Commissioner’s view that these properties were held directly on trust for the Family Trust. It was also contrary to the family member’s view that these properties were not held as part of the assets of the Family Trust.

Tang AM, Senior Member also held that:

each of the son, father and mother were “owners” of their relevant properties for the purposes of paragraph 10(1)(a) of the Land Tax Act; and
as beneficiaries of bare or fixed trusts, the trustees had entitlements to the relevant properties by way of a freehold estate in possession and therefore were also “owners” for the purposes of paragraph 10(1)(a).

Consequently (at paragraph 10):

(d) The scheme of the LT Act is that, where multiple parties may be regarded as the owner of land the subject of a trust, only one of those parties will be assessed to tax or, if both are assessed, that a credit is allowed to one party to avoid double taxation.

(e) While the Commissioner effectively has a discretion as to which party to assess if there are multiple owners, that discretion ought to be exercised consistently with the scheme of the LT Act.

(f) On review, the Tribunal can re-exercise the discretion available to the Commissioner in reaching the correct or preferable decision.

Therefore, Tang AM, Senior Member concluded:

(g) 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 LT 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.

Consequences

This decision has wider application to any group where there is a separate custodian or bare trustee holding property for another person or entity, such as for the trustee of a family trust, superannuation fund or property trust.

While there is an acknowledgement that the Commissioner has a discretion, the Tribunal was clear that each trust or custodian relationship should be treated as a separate trust for land tax purposes.

This decision confirms the position that a custodian holds property on trust for a beneficiary (such as a self managed superannuation fund or discretionary trust) separately for land tax purposes from that of the beneficiary. That is, the bare trust would be assessed separately from other land held in the beneficiary (unless a notification was made of the beneficial owner).

Effectively, this would potentially give the benefit of the progressive rates of land tax for multiple landholdings (ie for each bare trust) within the one investment structure. Although it may also result in multiple land tax surcharges for each bare trust.

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Please contact us with assistance with advice on the new tax or any other State Tax issues.

Phil Broderick
Principal
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E pbroderick@sladen.com.au

Nicholas Clifton
Principal Lawyer
T +61 3 9611 0154 | M +61 401 150 955
E nclifton@sladen.com.au

Meera Pillai
Associate
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