Recent updates for various Victorian state taxes

In recent weeks, we have seen some updates in relation to various Victorian state taxes, including:

• Vacant Residential Land Tax – legislation received royal assent to extend the holiday home exemption to land owned by companies or trusts.
• Payroll Tax – exemptions for certain general practitioners.
• Commercial and Industrial Property Tax – legislation received royal assent and rules apply from 1 July 2024.

We will discuss the importance of each update in more detail.

Vacant Residential Land Tax holiday home exemption extended

The State Taxation Amendment Bill 2024 (Vic) has recently received royal assent and will amend the Land Tax Act 2005 (Vic), to extend the holiday home exemption within the Vacant Residential Land Tax (VRLT) rules to land owned by companies or trusts from 1 January 2025.

What is VRLT?

The VRLT is an annual tax imposed on residential properties in Victoria that are vacant for more than six months in a calendar year. VRLT is assessed at rate of 1.0% of the capital improved value of the land for the first year (2.0% for the second and 3.0% for the third consecutive years) and is payable to the Victorian State Revenue Office.

The catchment zone for the VRLT rules was expanded late last year (see our previous Tax Alert here) to include an owner of residential property anywhere in the State of Victoria that is vacant for more than six months between 1 January 2024 and 31 December 2024, unless an exemption applies.

An exemption applies where the owner (or a relative) has used and occupied the land as a holiday home for at least 4 weeks (whether continuous or aggregate) in the preceding land tax year ending 31 December.

What are the requirements of the holiday home exemption?

The Commissioner of State Revenue must be satisfied that the property was a genuine holiday home, having regard to its location and distance between the owner or vested beneficiary’s actual home and the holiday home, as well as the frequency and nature of its use. 

An owner or a vested beneficiary will only be able to claim one holiday home exemption in a calendar year.

The scope of the VRLT exemptions have now been extended to include land owned by a corporation or a trustee of a trust (other than a trust with a vested beneficiary) when certain requirements have been satisfied, including:

• the owner of the land has been the owner of the land continuously since 28 November 2023, or since a later date if the owner became the owner at that date under a contract for the purchase of the land entered into on or before 28 November 2023;
• there has been no change in beneficial ownership of the land since 28 November 2023, except for a change involving persons who are relatives of one another;
• the minimum landholder threshold and principal place of residence (PPR) requirement must be satisfied;
• in the year preceding the land tax year (ie. ending 31 December), the land has been used and occupied as a holiday home for a period of at least 4 weeks (whether continuous or aggregate) by a specified person; and
• the Commissioner of State Revenue is satisfied that the land was used and occupied as a holiday home in the year preceding the tax year.

There are some important concepts we need to consider in more detail as part of these requirements.

A “change in beneficial ownership” can include changes in; shareholdings (in the case of a company), unit holdings (in the case of a unit trust), beneficial interests (in the case of a fixed trust) or specified beneficiaries (in the case of a discretionary trust). Where there has been a change, the VRLT exemption for holiday homes will only apply where the change is between persons who are relatives of one another. 

A “relative” within the meaning of the Land Tax Act 2005 (Vic) is rather narrowly defined and covers, among others, the spouse of the owner, as well as a sibling or child of either the owner or a spouse of a sibling and child.

The “minimum landholder threshold” requires a minimum ownership interest of 50.0% in the landowner (in the case of companies, unit trusts and fixed trusts) by one or more individual persons who must have used and occupied other land (ie. other than the holiday home in question) in Australia as a PPR. In other words, if a company/ unit trust/ fixed trust has a shareholder/ unitholder/ beneficiary that is a discretionary trust with a greater than 50.0% interest, then the “minimum landholder threshold” requirement can not be satisfied.

Specifically in the case of discretionary trust landholders, it requires a specified beneficiary of a discretionary trust who is a natural person or a relative of that person must have used and occupied other land in Australia as a PPR.

Does the holiday home exemption extend to contiguous land?

The exemption for holiday homes can also include separately titled residential land that is contiguous to a holiday home, in certain circumstances. To be exempt, the contiguous land must be owned by the owner of the holiday home land, it must enhance the holiday home land and must be used solely for the private benefit and enjoyment of the person who uses and occupies the holiday home land (ie. land used for a tennis court, swimming pool or garden). 

Contiguous land can be separated from the holiday home land, but only by a road or railway or other similar area where movement across or around is reasonably possible.

Why is there a stipulation for trusts “other than a trust with a vested beneficiary”?

It is not common for the holiday home exemption to apply to a vested beneficiary of a trust.  A vested beneficiary is a natural person who has a vested beneficial interest in possession in the land or is the principal beneficiary of a special disability trust.

The most common trusts that own holiday homes are likely to be discretionary or family trusts and these typically do not have property vested in a particular beneficiary.  While vesting a property in a natural person beneficiary may be possible, careful consideration is needed to avoid any adverse implications for income tax (including capital gains tax) and stamp duty implications.

What are the implications for self-managed superannuation funds?

Self-managed superannuation funds (SMSFs) are precluded from providing residential premises to their members or associates of the members.  Therefore, it is difficult to see how a SMSF could avail itself of the four weeks holiday home exemption. Indeed any such properties owned by a SMSF would need to be used for income producing purposes by letting out to unrelated parties on commercial terms and conditions.

Please do not hesitate to contact your Lowe Lippmann Relationship Partner if you wish to discuss any of these matters further.

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