Land Tax: Individual vs Trust Ownership
Trust structures have long been popular for property investment, offering asset protection and flexible income distribution. But several states now impose land tax surcharges on trusts, making the decision more complex.
| Individual Ownership | Trust Ownership | |
|---|---|---|
| NSW threshold | $1,075,000 | $0 for a special (discretionary) trust — taxed from the first dollar at 1.6%; fixed trusts keep $1,075,000 |
| VIC threshold | $50,000 | $25,000 (lower) + 0.375% on its own rate scale |
| QLD threshold | $600,000 | $350,000 (lower) + steeper scale to 2.75% |
| PPR exemption | Available | Not available |
| Asset protection | Limited | Strong |
| Income distribution | Fixed to owner | Flexible across beneficiaries |
Land held in trusts (including discretionary/family trusts) costs more in these states:
Victoria
Queensland
NSW note: NSW is the harshest of the three and it is easy to miss, because the cost is not a surcharge. A discretionary or family trust is a special trust under section 3A of the Land Tax Management Act 1956, and schedule 13 part 2 taxes a special trust at 1.6% of its whole taxable value from the first dollar — it loses the $1,075,000 threshold entirely. Only a fixed trust (or a unit trust meeting the section 3A criteria) is assessed like an individual. Section 5D adds 5% surcharge land tax on top where the deed does not irrevocably exclude foreign beneficiaries.
Victoria taxes a trust on its own rate scale rather than adding a surcharge to the general one, so the trust bill is a single figure — not a standard assessment plus an extra line. The combination of the lower threshold and the higher marginal rates is what does the damage. Here's a comparison for a $750,000 land value:
Individual ($750k land, VIC)
Trust ($750k land, VIC)
Land tax is calculated on the total value of all taxable land owned by the same entity in a state:
How is a trust taxed for land tax in NSW?
NSW has no flat trust surcharge. It has something more expensive: a discretionary or family trust is a special trust under section 3A of the Land Tax Management Act 1956 (it is not a fixed trust), and schedule 13 part 2 of the Land Tax Act 1956 taxes a special trust at 1.6% of its whole taxable value from the first dollar — the $1,075,000 tax-free threshold does not apply at all. A fixed trust, and a unit trust that meets the section 3A "relevant criteria", keeps the threshold and is assessed like an individual. Separately, section 5D treats the trustee of a discretionary trust as a foreign person for surcharge land tax unless the deed irrevocably prevents any foreign person from being a beneficiary, which adds 5% of the residential land value on top.
How much extra land tax do trusts pay in Victoria?
In Victoria, trusts pay a surcharge of 0.375% on the total taxable land value, in addition to the standard land tax rates. Trusts also have a lower tax-free threshold of $25,000 compared to $50,000 for individuals. This means a trust with $500,000 in land value pays significantly more than an individual with the same holdings.
Can a trust claim the principal place of residence exemption?
No. The principal place of residence (PPR) exemption is only available to individuals who own and live in the property. A property held in a trust cannot claim this exemption, even if a beneficiary of the trust lives in the property. This is an important consideration when deciding between individual and trust ownership.
When does trust ownership still make sense despite land tax surcharges?
Trust ownership can still be advantageous for asset protection from creditors and litigation, estate planning and succession, income distribution flexibility across family members, and holding commercial property where surcharges may not apply. The land tax surcharge cost should be weighed against these benefits with professional advice.