R.C. Land Management Pty Ltd – Supreme Court considers nature of trusts for Victorian land tax

‍The recent R.C. Land Management Pty Ltd v Commissioner of State Revenue [2026] VSC 49 (link here) has considered the nature of trusts for Victorian land tax purposes and whether the Commissioner can infer the existence of trusts and impose tax accordingly.

In a win for the taxpayer, the State Revenue Office was not able to infer the existence of a “unit trust scheme” or some other trust.

Facts

Two discretionary trusts (“Trust A” and “Trust B”) had been set up for separate families.  Both had the Appellant as trustee (the “Company”).  Trust A was set up for members of one family and Trust B for another family.

The Company held 8 parcels of land.

The Trusts were established for a land development business.  This included buying, developing and leasing the land owned by the Company.  Each trust was a “partner” with a 50% interest in each parcel of land.  A separate company undertook the development of the land – the Company held the land and leased it to third parties.

The partnership of the two Trusts had an Australian Business Number, prepared a single profit and loss statement and balance sheet and each Trust lodged separate tax returns.

As the Trusts had been set up before 2006, beneficiaries had been nominated for section 46F purposes.  This meant that for each trust, pre-2006 land was to be assessed at the ordinary, non-trust surcharge rates.  However, the nominated beneficiary would also potentially receive a land tax assessment for the pre-2006 land at the beneficiary’s marginal land tax rates (with a credit for the land tax paid by the trust).  For more on these provisions see here.

After an investigation, the Commissioner issued notices of assessment for land tax across multiple years to the Company “on behalf of” Trust A and Trust B and described as “for land held in joint ownership”.

On determination of the objection, the Commissioner accepted that the Company held the land in separate capacities of ownership but maintained that the two separate trusts had been correctly assessed as joint owners under subsection 38(6) of the Land Tax Act 2005 (Vic).  Section 38 relevantly provides:

38 Assessment of joint owners of land

(1) Joint owners of taxable land are to be assessed for land tax (other than vacant residential land tax) on land in accordance with this section.

...

(2) Subject to subsections (2A) and (2B), joint owners of taxable land are to be jointly assessed for land tax on the land as if it were owned by a single person, without regard to—

(a) the separate interest of each joint owner; or

(b) any other land owned by any joint owner (either alone or jointly with someone else).

...

(3) In addition, each joint owner of taxable land is to be separately assessed for land tax on—

(a) the owner's individual interest in the land (as if the owner were the owner of a part of the land in proportion to that interest); and

(b) any other taxable land owned by the owner alone; and

(c) the owner’s individual interest in any other taxable land.

...

(4) There is to be deducted from the land tax assessed for a joint owner under subsection (3) an amount (if any) necessary to avoid double taxation, ...

(6) If a joint owner of land is a trustee of a trust or an absentee trust to which the land is subject, no regard is to be had to the existence of the trust in relation to the joint assessment of the joint owners of the land as referred to in subsection (2), (2A) or (2B), but regard is to be had to the existence of the trust in relation to the separate assessment of the joint owners as referred to in subsection (3).

Arguments

The taxpayer argued that the Company held separate 50% interests in the Properties on behalf of Trust A and Trust B, without any intervening third trust.

The Commissioner argued that there was an implicit “unit trust scheme” with the rights held by each of Trust A and Trust B being “units”.  Both “unit trust scheme" and “units” have a wide meaning for land tax purposes. 

Further, the Commissioner argued that the support for this implied unit trust scheme could be found in the Company having a right of indemnity as trustee of the unit trust scheme against the assets acquired by it as trustee.  The Supreme Court recognised that this was a circular argument.

The Commissioner argued that as the Company was trustee under this head trust and that no section 46C notice of unitholdings had been given, the Company was to be taxed on the whole land for land tax purposes.

The taxpayer, argued, successfully, however, that the definition of “unit trust scheme” still required a trust to exist and that no third trust was created.  Instead, there was simply a tax law partnership between Trust A and Trust B.  The taxpayer argued that a unit trust requires a clear intention to be created and that there was no “intention manifested” to create a separate head trust.

As a fall back argument, the Commissioner argued that if the argument that there is a unit trust fails, then there was a separate fixed trust or other trust not a unit trust scheme or discretionary trust.  Again the taxpayer’s position was that there was no further trust separate from Trust A and Trust B.

Supreme Court

The Supreme Court applied the reasoning in the High Court’s decision in CPT Custodian Pty Ltd v Commissioner of State Revenue [2005] HCA 53 – being a two stage approach:

The first step was to ascertain the terms of the trust upon which the relevant lands were held.  The second was to construe the statutory definition to ascertain whether the rights of the taxpayers under those trusts fell within that definition.

On reviewing the trust deeds for Trust A and Trust B, the accounting records of each Trust, the income tax returns and that there was no written evidence showing any intention to create a third trust.  The accounting records were important, as if there was a third unit trust, the accounts of Trust A and Trust B would have showed ownership of the units rather than ownership of a 50% interest in the Properties.

Given that there was no certainty of intention to create a separate head trust (whether unit trust or fixed trust), the Commissioner’s arguments were rejected.

The court went onto hold that it is impossible for a person to create a trust over property in their own favour.  On that basis, the Company could never have created a third trust to hold the Properties for itself in its capacities as trustee of Trust A and trustee of Trust B.  This was expressed as a general rule that person cannot be trustee for themselves.

Lastly, the Commissioner lost on the argument the Trusts should be taxed as joint owners of the Properties under section 38.  This was on the basis that the Trusts were not deemed to be separate persons for land tax purposes (unlike, say, for income tax or GST).  In the absence of any statutory deeming provisions, the Company did not hold the Properties as joint owner with itself.

Instead, the subsection 46A(2)/46G(3) position that a “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”applied to each of Trust A and Trust B.

The Company was therefore liable for land tax in two separate capacities as Trustee for two separate assessments (each to 50% of the land tax value of the Properties).

It is noted that this decision is in line with the State Revenue Office’s website position.

Key Observations

This is another unfortunate case where the State Revenue Office appears to be arguing positions before the courts and tribunals that are at odds with their website guidance and/or public rulings.

The outcome, however, is positive – trusts must be separately taxed for land tax purposes even where there is the same trustee.

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Please contact us with any questions in relation to the landholder duty regime or any other State Tax issues.

Phil Broderick
Principal
T +61 3 9611 0163  l M +61 419 512 801  
E pbroderick@sladen.com.au    

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