On 14 May 2024, the State Taxation Amendment Bill 2024 (Vic) (the Bill) was released after having its second reading speech in the Victorian Legislative Assembly.
In welcome news for taxpayers, the Bill contains changes that have been keenly anticipated, including an expansion of the holiday home exemption for vacant residential land tax (also called VRLT) to properties in trusts.
The Bill also contains other changes to State Taxes as well as further detail on changes announced in the Victorian State Budget 2024-25 that was delivered on 7 May 2024 (refer to our earlier commentary here on the State Budget).
Key changes
Vacant residential land tax - Expansion of holiday home exemption to properties in trusts (from 1 January 2025)
Vacant residential land tax applies in addition to base land tax, where a residential property is not occupied for at least 6 months in a year. Under the holiday home exemption only 4 weeks of usage as a holiday home is required. This to date has been restricted to holiday homes that are held by individuals who have an existing principal place of residence elsewhere in Australia. The State Government had promised to extend this to holiday homes in family trusts – but had not legislated the exemption (as we noted in our earlier commentary here on the vacant residential land tax).
The Bill now extends the exemption from vacant residential land tax for holiday homes to properties held in a family trust (but with many restrictions which are outlined below) from 1 January 2025. The exemption also extends to some companies and unit trusts.
The key requirements for vacant residential land tax exemption for a holiday home held in a family trust for a particular tax year are as follows:
the owner of the property held it on 28 November 2023 (or it must have been under contract to purchase as at that date) and the owner has continuously held it since that time;
there has been no change in specified beneficiaries of the trust since 28 November 2023 (or the date of settlement under a contract entered into before 28 November 2023) (or any change has been to add or remove relatives);
a specified beneficiary of the trust who is a natural person or a relative of that person used and occupied other land in Australia as a principal place of residence (“the PPR requirement”);
in the year preceding the tax year, 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 beneficiary of the trust who is a natural person or a relative of that person (who meets the PPR requirement); and
the Commissioner of State Revenue (Commissioner) is satisfied that the land was used and occupied as a holiday home in the year preceding the tax year.
In considering whether land was used and occupied as a holiday home for the purposes of new subsection the Commissioner must have regard to:
the location of the land;
the distance between the location of the land and the principal place of residence of a shareholder, unitholder, beneficiary or specified beneficiary (as the case requires); and
the nature and frequency of the use of the land.
Similar rules apply for holiday homes in companies or unit trusts, however at least 50% of the shares or units must be held by natural persons who hold a principal place of residence elsewhere in Australia – which is likely to severely restrict the benefit of the exemption.
Vacant residential land tax - Expansion of holiday home exemption to contiguous exempt land (from 1 January 2025)
From 1 January 2025, the holiday home exemption will also be extended to land that is contiguous to a holiday home. This is land that is owned by the owner of the holiday home land, enhances the holiday home land and is used solely for the private benefit and enjoyment of the person who uses the holiday home land (i.e. a tennis court, swimming pool or garden).
This is necessary as from 1 January 2026, land in metropolitan Melbourne that is unimproved for 5 years or more becomes subject to the vacant residential land tax. A separately tilted lot next to a holiday home would therefore be taxable as only one lot can claim the holiday home exemption.
Other changes
Land Tax - assessments for joint owned land and certain trusts with nominated beneficiaries exempt from two-level assessing rule (retrospectively from 1 January 2024)
The Victorian land tax provisions separately assess joint owners of land (including tenants in common). A separate land tax assessment is then issued to each joint owner of land aggregating their interest in the jointly held land with their own landholdings (secondary liability) with a credit for their share of the land tax paid on the joint assessment. Similar rules apply for trusts where there are beneficiaries nominated to the State Revenue Office Victoria. Refer to our earlier commentary here on assessment of joint owners on land tax.
Prior to the ‘COVID-19 debt temporary land tax surcharge’, where a joint owner did not hold any other land in Victoria, the credit would always offset the land tax payable at the joint owner level. The COVID-19 debt temporary land tax surcharge introduced in the Victorian State Budget 2023-24 inserted a $500 flat land tax for total land holdings valued between $50,000 and $100,000 and $975 for total land holdings from $100,000 to $300,000.
A consequence of the introduction of the COVID-19 debt temporary land tax surcharge was that the offsets for joint ownership may no longer fully offset the liability of the joint owners, because the fixed surcharge component of the surcharge applies at both the joint ownership and individual owners levels. This was identified at the time at the time the COVID-19 debt temporary land tax surcharge was announced, but only now is this being addressed.
Amendments in the Bill now turn off the secondary liability for joint owners that hold no other land, where they are not foreign owners (i.e. effectively restoring the full credit). These only apply for the life of the COVID-19 debt temporary land tax surcharge.
The amendment operates retrospectively from 1 January 2024 to ensure it applies for the full duration of the temporary surcharge under the COVID Debt Repayment Plan (2024 to 2033), and that affected taxpayers are not subject to a higher land tax liability than intended for the 2024 land tax year.
Land Tax - new exemption for social and emergency housing (from 1 January 2025)
The Bill includes a new exemption from land tax for social housing and emergency housing that applies from 1 January 2025. This was first announced in the Victorian State Budget 2024-25 (refer to our earlier commentary here on the State Budget).
Land will be exempt land if the Commissioner determines that is used exclusively as social housing that is occupied (or made available for occupation) by a person whose name was registered in the Victorian Housing Register and who was allocated a tenancy in the social housing.
Another (effectively provisional) exemption applies to land owned by a charitable institution that is vacant and declared by its owner to be held for future use and occupation as social housing.
The Commissioner must be satisfied that the land will be exempt land within two years or a longer period approved by the Commissioner to qualify for the provisional exemption.
Payroll Tax - non-government schools lose exemption unless declared exempt (from 1 July 2024)
Last year’s Victorian State Budget 2024-25 (refer to our earlier commentary here on last year’s State Budget) contained the removal of the payroll tax exemption for high-fee non-government schools.
As originally enacted, the new payroll tax did not apply to schools run by religious institutions or charitable bodies and certain high fee non-government schools were still able to obtain the payroll tax exemption. This has now been fixed in the Bill.
From 1 July 2024, high fee non-government schools will lose their exemption for payroll tax unless they are specifically declared exempt by the Minister for Education with the consent of the Treasurer.
Stamp duty – Definition of business insurance premiums to include cyber professionals (from 1 January 2025)
The Bill makes minor amendments in relation to duty chargeable on premiums paid in relation to contracts of business insurance including giving the Treasurer of Victoria a power to declare a class of business for the purposes of the definition of business insurance or to exclude a class of business.
The amendments now include “cyber” and “directors and officers” as classes of business insurance from 1 January 2025. This is subject to the phased elimination of business insurance duty from 1 July 2024 over 10 years.
Action Required
Holiday homeowners in Victoria should document the use and occupancy of their properties to satisfy the requirements of the exemption.
Joint owners of land should obtain advice on whether they are eligible to legally prevent double taxation.
Victorian high-fee non-government schools should establish processes and templates, upskill staff, and address potential challenges to ensure compliance with payroll tax obligations.
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Please contact us with assistance with advice on any of the State Taxes measures in the State Taxation Amendment Bill 2024 or any other State Tax issues.
Phil Broderick
Principal
T +61 3 9611 0163 l M +61 419 512 801
E pbroderick@sladen.com.au
Nicholas Clifton
Principal Lawyer
T +61 3 9611 0154 | M +61 401 150 955
E nclifton@sladen.com.au
Meera Pillai
Associate
T +61 3 9611 0179
E mpillai@sladen.com.au
