NSW Land Tax & Unit Trusts: December 31 Deadline Approaching

December is the last chance to act to take advantage of the Land Tax threshold in NSW.  In NSW the rate of land tax for 2026 is:

Being able to claim the land tax threshold will currently save you $17,200 per year.

When land in NSW is owned by a trust then can only get the land tax threshold when not a “special trust”.

A “special trust” is any trust that is not a:

• Charitable trust
• Superannuation trust
• Testamentary trust for 2 years after death of testator
• Concessional trust – a particular type of trust set up for certain disadvantaged persons
• Fixed Trust

A unit trust is not automatically a fixed trust. A unit trust will only be a fixed trust where it satisfies the “relevant criteria”.

The relevant criteria are as follows:

a. the trust deed specifically provides that the beneficiaries of the trust:

(i) are presently entitled to the income of the trust, subject only to payment of proper expenses by and of the trustee relating to the administration of the trust, and
(ii) are presently entitled to the capital of the trust, and may require the trustee to wind up the trust and distribute the trust property or the net proceeds of the trust property,

b. the entitlements referred to in paragraph (a) cannot be removed, restricted or otherwise affected by the exercise of any discretion, or by a failure to exercise any discretion, conferred on a person by the trust deed,

c. if the trust is a unit trust:

(i) there must be only one class of units issued, and
(ii) the proportion of trust capital to which a unit holder is entitled on a winding up or surrender of units must be fixed and must be the same as the proportion of income of the trust to which the unit holder is entitled.

Consequences of Satisfying Relevant Criteria

Where the relevant criteria in section 3A of the LTMA are satisfied as at midnight on 31 December 2025 then the Trust will be entitled to a NSW land tax threshold for the 2026 land tax year (in respect of NSW land held at 31 December 2025).

The consequence of satisfying the relevant criteria however is that all unitholders will become secondary land tax payers and as such will receive assessments for NSW land tax in respect of the NSW land owned by the Trust.

The nature of the unitholders and their respective landholdings will determine whether they will be liable to pay any NSW land tax.  For instance, where the NSW land value of the Trust is less than the land tax threshold, all of the unitholders are companies, superannuation funds or individuals who own no taxable land directly then no NSW land tax would be payable by the unitholders. However, where the unitholder is a discretionary trust then the discretionary trust will be liable to NSW land tax without the benefit of the land tax threshold.

Satisfaction of the relevant criteria also results in the unitholders having specific rights which entitle them at any time to demand a redemption of their units at market value.  This may be an unwanted consequence if the trust is being used for a purpose other than holding NSW land.  Other consequences of making the Trust a fixed trust are that:

• unit holders are presently entitled to all of the income and capital of the Trust in proportion to the number of units they hold. The trustee of the Trust will no longer have a discretionary income or capital distribution powers and so will no longer be able to income split between beneficiaries of the Trust;
• there will be capital gains tax consequences where the Trust later distributes capital or a non-assessable amount to a unit holder.

The law and administrative practice may change at any time and the trust may not always be accepted as being a fixed trust.  You should seek regular and ongoing advice in respect of specific circumstances.  In particular you should confirm before 31 December each year whether the deed is likely to be accepted by the Revenue NSW as satisfying the relevant criteria.