This precedent has been authored by Selwyn L Black and Peter D Carroll, Carroll & O’Dea, updated by Jane Garber-Rosenzweig, Gable Lawyers and then by Selwyn L Black and Peter D Carroll. This document is prepared with the assistance of Specialist Editor Stephen Newman, Executive Counsel, Ponte Earle. Introductory note This precedent is to be read with the “Unit trust deed” precedent and sets out changes to be made to “Unit trust deed” so the unit trust will be treated as a fixed trust for NSW land tax purposes. Revenue NSW and land tax on fixed trusts Following the decision of the High Court in CPT Custodian Pty Ltd v Commissioner of State Revenue [2005] HCA 53, Revenue NSW has treated nearly all unit trusts holding land in NSW as liable to be assessed to land tax as "special trusts". Those unit trusts are not eligible for the threshold amount concession. For the NSW 2018 Land Tax Year the threshold amount is $629,000 so that "special trusts" would have been assessed to $10,064 of land tax in respect of the first $629,000 of NSW land value. In determining if a unit trust is a "fixed trust" for NSW land tax purposes, any equitable interest of the trustee as trustee of the trust is disregarded (see section 3A(3) of the Land Tax Management Act 1956 (NSW) (NSW Land Tax Act)) and the persons who are the beneficiaries of the trust under the trust deed are taken to be owners of an equitable estate in the land (see section 3A(3A) of the NSW Land Tax Act). If a unit trust satisfies the "relevant criteria" set out in section 3A of the NSW Land Tax Act, it is treated as "fixed trust" - see Land Tax - Unit Trusts and Unit Holders of Unit Trusts Fact Sheet available on the Revenue NSW website www.revenue.nsw.gov.au and Commissioner's Practice Note No. CPN 003. However, before any decision is made to either create a unit trust so that it is a "fixed trust" for NSW land tax purposes or to amend a unit trust deed for an already established unit trust so that it is a fixed trust for NSW land tax purposes, it is important to consider the disadvantages and risks as well as the potential concessional saving. Calculating the benefits In calculating the benefits, consider the land holdings of the expected unit holders and the system of primary and secondary taxpayers for NSW land tax purposes - see Land Tax Deduction to Prevent Double Taxation Fact Sheet on the Revenue NSW website www.osr.nsw.gov.au. For example, if a unit trust with $1m in NSW land value has two unit holders each owning land with a NSW land value exceeding the threshold amount, there is little point in the unit trust deed satisfying the "relevant criteria" test as there will be no NSW land tax saving whatsoever since the unit holders will be taken to own proportionate interests in the fixed trust's NSW land. On the other hand, if the unit holders held no land in NSW, there is a land tax saving of 1.6% (as at 1 January 2018) of the threshold amount. The NSW land tax threshold amount concession may also be available for trusts which are solely a charitable trust, a concessional trust (where the beneficiaries are under 18, or the subject of a guardianship order, or a target group under the Disability Services Act 1993 (NSW)), or a superannuation trust, and (during the first 2 years after the death of the testator) a trust established by a will, or (if the criteria were met as at 31 December 2005) a "Family Unit Trust", subject in each case to the applicable definitions and criteria (see section 3A(4) of the NSW Land Tax Act). If the unit trust comes within one of these concessions, it may not be necessary to make the "relevant criteria" changes. The result of making these changes to comply with the statutory criteria may significantly change the nature and effect of the unit trust -- some aspects of the traditional flexibility of modern unit trusts will be lost (although Practice Note No. CPN 003 states that the right of the Trustee to accumulate income may remain unaffected) but generally individual unit holders gain greater rights. The upgraded unitholder rights may result in different revenue law consequences. In addition, the required changes to the unit trust deed provisions in precedent “Unit trust deed” result in some ambiguities and possible contradictions with other terms of the trust deed, and legal advice in respect of these changes and the revenue law and dispute risks should be sought having regard to the expected activities, profits and gains of the trust and the anticipated relationships between the unit holders and trustee. Amendments to an established unit trust deed If making amendments to an established unit trust deed, generally see “Deed of variation of unit trust joining unit holders” and “Deed of variation of unit trust not joining unit holders”. However, there is a risk that making such amendments to a subsisting deed of trust could result in a liability for stamp duty or create a CGT event or both especially where existing class rights issued to unit holders are terminated - see the introductory notes to “Deed of variation of unit trust joining unit holders”. The website for Revenue NSW as at 1 January 2018 states: “Restructure of unit trusts Unit trusts that do not meet the relevant criteria and are special trusts are able to restructure their trust deed to be considered a fixed trust for future tax years. The unit trust deed can be amended to become a fixed trust by inserting the relevant criteria as an overriding clause by a Deed of Amendment. It would be preferable if the relevant criteria inserted were prefaced by the word 'notwithstanding' or similar to remove any doubt. The amending deed takes effect from the date of execution. Refer to Sayden Pty Ltd v Chief Commissioner of State Revenue [2013] NSWCA 111. To ensure the amending deed meets the relevant criteria, it is preferable to send a draft copy to us for review, together with a full copy of the original trust deed if it has not already been supplied. We recommend that you seek professional, financial and legal advice prior to amending your trust deed.” Related precedent This precedent should be used in association with the precedent "Unit trust deed".