Self managed superannuation funds commonly use unit trusts to invest in real estate. However, changes to the NSW land tax provisions will mean that most unit trusts will no longer be able to use the land tax threshold, resulting in increases in NSW land tax obligation this calendar year.

From 31 December 2006, unit trusts with real estate investments will have to pay land tax on every dollar of the land’s unimproved capital value unless the trust deed confers on unit holders an equitable interest in each trust asset. Nowra Chartered Accountant, David Sim, said that in the vast majority of cases old unit trust deeds will not do this, and as a result land tax bills for these trusts will be significantly higher this year. He did say, however, that potential to reduce the land tax bill does exist under special transitional provisions. “The NSW land tax regime does allow a 12 month period to restructure a unit trust, without incurring additional state taxes such as stamp duty; after the restructure the unit trust may apply for a refund of the 2006 land tax,” Mr Sim said.

However, trustees should note that there may be many other considerations required before restructuring a unit trust in order to access the land tax threshold. For example, it is only possible to work out if it is advantageous to alter a trust deed after reviewing each trust’s particular circumstances, especially in relation to the calculated amount of the increase to the land tax burden; the importance of flexibility to the trust's structure; and whether any amendments to the trust's deed will have capital gains tax implications as a result of a trust resettlement.

Every trustee of a self managed superannuation fund and unit trust impacted by these changes needs to seek professional advice regarding each trust they are responsible for managing. This is essential to ensure trustees are meeting their trustee obligations, as well as ensuring investment returns are not unnecessarily reduced. Mr Sim said that any person who would like specific advice in relation to their circumstances should contact him at GiffardSim Accountants at Nowra on (02) 4421 4355.

<ENDS>