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Judges decide for investors in unit trusts

Judges decide for investors in unit trusts

Investors who hold property through unit trusts have welcomed a recent decision by the High Court, in which the presiding judges unanimously held that unit holders in a unit trust are not the…

Investors who hold property through unit trusts have welcomed a recent decision by the High Court, in which the presiding judges unanimously held that unit holders in a unit trust are not the ‘owners’ of the land for the purposes of liability for Victorian land tax.

In CPT Custodian Pty Ltd v Commissioner of State Revenue; Commissioner of State Revenue v Karingal 2 Holdings, it was held that the taxpayers were unit holders in unit trusts that owned land in Victoria (being a number of suburban shopping centres). The Commissioner of State Taxation had assessed the taxpayers on the basis that they were the ‘owners’ of the land held by the trusts, but the taxpayers appealed.

According to Arnold Bloch Leibler partner Joey Borensztajn, the Commissioner’s interpretation meant he could have aggregated all the taxpayers’ land interests, whether held in their own name or through unit trusts, thereby increasing the total value of property interests held by the taxpayers and resulting in a higher tax being applicable to those properties.

The High Court found that the unit holders were not owners of the land held by the trust regardless of whether they held all or some of the units. This was the case because unit holders could not demand immediate transfer of the trust assets to themselves. The judgement said any claims against the trust would first have to be settled before the trustees were entitled to payment out of the remaining assets — the judges noted that a trustee’s right of indemnity against trust assets was a significant factor in their conclusion.

“This decision is hugely significant to many taxpayers, particularly those with major property investments,” Borensztajn says. Arnold Bloch Leibler has been engaged in a six-year battle with the Victorian State Revenue Office in relation to this issue, and a number of the firm’s property clients had been awaiting the outcome of this decision to determine their own objections and appeals.

“Our job as lawyers is to ensure that the provisions of the Land Tax Act, and any other act that affects our clients, have been appropriately and fairly applied,” he said. “Had the decision gone the other way, it would have significantly increased our clients’ tax liability beyond what they could reasonably have anticipated and budgeted for.”

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Judges decide for investors in unit trusts
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