As discussed in Part 1 and Part 2 of this series, land tax is levied on the total taxable value of land held by a taxpayer in a particular jurisdiction. Land tax is then levied on a progressive graduated scale. That is, the higher the value of land that you own the higher the rate of land tax you pay.

In order to capture all of a taxpayer’s landholdings the aggregation rules apply. In addition, the grouping rules operate in order to prevent the use of companies as a way of avoiding the graduated scale. Both of these issues are discussed further below.

Land holding aggregation rules

The application of the landholding aggregation rules is generally simple for most taxpayers. That is, add up the value of all of the taxpayer’s landholdings and multiply the total value of those lands by applicable progressive land tax rate (as set out in Part 1 of this series) and, where applicable, a land tax surcharge (as discussed in Part 3). If the value of the total landholdings are less than the applicable land tax threshold ($25,000 for applicable trusts and $250,000 for other taxpayers – which is to increase to $300,000 for the 2022 year), then no land tax is payable.

There are a number of complications with the aggregation rules, including:

Any exempt land (for example your principal place of residence or primary production land) is excluded from the aggregation rules;
Any land, or part of land, held by a trust that you are deemed to hold, will be aggregated (this is discussed further in Part 2);
Part of land, that you hold jointly, will be aggregated (this is discussed further in Part 1);
Land held by purchasers under uncompleted contracts will be aggregated where the purchaser has taken possession of the land prior to settlement;
Life tenants who have possession of land will be deemed to hold that land for the aggregation rules

Land tax grouping for companies

Under the current Victorian land tax regime as set out in the Land Tax Act 2005 (Vic) (LTA), land tax grouping only applies to landholdings held by companies. The previous land tax grouping regime for trusts has been replaced by the trust surcharge regime (as discussed in Part 2). While there is no land tax grouping for natural persons or superannuation funds.

In the absence of the land tax grouping regime, where multiple lands are owned by a number of different corporations which are commonly controlled, each corporation will have the benefit of a land tax-free threshold, and lower land tax rates, applying to their landholdings. Therefore, to protect the aggregation principle enshrined in the LTA, there are legislative provisions to address this situation where different corporations which are commonly controlled each have their own landholdings.

These provisions are found in sections 47 to 50 of the LTA and are commonly known as the land tax grouping provisions.

To ascertain if the land tax grouping provisions apply, the corporations will have to be “related corporations” under the definition provided in section 47.

What is a related corporation?

Corporations are related for the purposes of section 47 if:

One of those corporations controls the composition of the board of the other corporation; or
One of those corporations is in a position to cast, or control the casting of, more than 50% of the maximum number of votes that might be cast at a general meeting of the other corporation; or
One of those corporations holds more than 50% of the issued share capital of the other corporation; or
The same person has, or the same persons have acting together, more than 50% of the shares, or more than 50% of the voting power at a general meeting or control the board of directors in each of the corporations; or
The corporations are related to a common corporation.

Section 48 of the LTA provides further guidance in determining whether corporations are related corporations:

Corporations may be related corporations whether or not they own land in Victoria;
A reference to the term “issued share capital” does not include shares which carry no right to participate in a distribution of either profits or capital beyond a specified amount (eg. preference shares);
Shares held or power exercisable by a person or corporation as a trustee or nominee for another person or corporation will be treated for grouping purposes as being held by the beneficial holder;
Shares held or power exercisable by a person or corporation by virtue of a debenture, or a trust deed for securing the issue of debentures, must be disregarded.
Shares held or power exercisable by a person or corporation whose business includes the lending of money shall be treated as not held by that person or corporation provided that the shares are held or the power exercisable merely as a security over a transaction entered into in the course of that business;
A person or another corporation does not need to have a controlling interest in two corporations by the same means for a group to exist. For example - if an individual can control the composition of the board of directors of Corporation A and holds more than 50% of the issued share capital of Corporation B, this would cause both Corporation A and Corporation B to be grouped for land tax purposes.

Discretion to group and “degroup”

Where it is found that two or more corporations are related under the land tax grouping provisions, the Commissioner of State Revenue may group the different corporations to be treated as a single corporation under section 50 of the LTA. That is, the Commissioner has the discretion to group (or not to group) related corporations for land tax purposes.

The Commissioner’s discretion to group related corporations for land tax purposes is expressed in broad terms and can be exercised in relation to each related corporation within the group for each tax year.

In Numo Pty Ltd v Commissioner of State Revenue [2016] VSC 274 the Supreme Court of Victoria relevantly held that the Commissioner’s determination to group related corporations can apply retrospectively and apply for prior tax years.

SRO Revenue Ruling LTA-008 further provides that the Commissioner will also take into account the following factors in the exercise of discretion to group related corporations for land tax purposes:

Intention to avoid land tax
Degree of relatedness
The degree of control by the directors of the day to day operation of each related corporation
The degree of interrelationship between each corporation
Use of the land
Other relevant factors

Land tax assessments to groups

If related corporations are grouped, then the group will receive a single land tax assessment based on the aggregated land holdings of all of the companies in the group. However, this does not apply to vacant residential land tax (as discussed in Part 3) which is assessed on a single holding basis.

Members of the group jointly and severally liable

While the group assessment may only be levied on one member of the group, each member of the group is jointly and severally liable for the group’s land tax (other than vacant residential land tax). That is, the Commissioner can enforce the total land tax liability against any member of the group. This will include members of the group that have no landholdings.

If the land tax is recovered from a member of a group, then that member can, under section 46 of the Taxation Administration Act 1997 (Vic), recover a contribution from any other person who is liable to pay the whole or part of that amount (ie other members of the group).

Questions

If you have any questions about how land tax should apply in your circumstance, please contact our specialist team at:

Phil Broderick
Principal
M +61 419 512 801 | T +61 3 9611 0163
E: pbroderick@sladen.com.au