Helping the Kids… Hit with Land Tax (Initially)

Harrison v Commission of State Revenue [2018] QCATA 75 involved an unusual matter where the registered proprietor of property (‘the taxpayer’) contended that he be bound by his own promises, agreements and conduct which were inconsistent with his legal (as opposed to equitable) rights as the registered proprietor of properties in Queensland.

The Facts

The taxpayer made an agreement whereby he would personally purchase three houses near his house in which his three respective children (and their families) would live in. The taxpayer borrowed funds which were secured by mortgages over the respective properties and was responsible for repayment of the mortgages. The children paid the taxpayer a reasonable rent amount which defrayed the costs of the mortgages. The taxpayer made a mutual will with his wife whereby the houses would go to the respective children upon the death of the taxpayer and his wife.

Commissioner’s Assessment

The Commissioner assessed land tax on the aggregated value of the three properties as the taxpayer was the registered owner of all three properties.

The Taxpayer’s Claim

Following an unsuccessful review process, the taxpayer appealed the Commissioner’s decision to QCAT and contended that he held the properties as trustee in each case for his individual adult children and therefore he ought not to be assessed as being liable for land tax on the aggregate value of the properties.

The Decision

QCAT determined (on appeal) that the properties were held by the taxpayer as trustee on constructive trust based on the common intention of the parties (or proprietary estoppel).

The Commissioner’s assessment was set aside and the matter was remitted to the Commissioner for separate assessment of land tax.

Summary

The taxpayer could have saved the time and expense of the appeals process if he had unequivocally established the trusts before purchasing the properties and disclosed the same in the contract to purchase the properties and on the related Title Office transfer documents.

We recommend that anyone purchasing property, particularly where purchasing property through a trust, contact our office prior to entering into a contract. There can be significant income tax, land tax and duty consequences if a trust is not correctly established and/or disclosed.