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Holiday home exemption from vacancy residential land tax will be extended to companies and trusts.
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Victorian government honours its commitment
24 May 2024
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On 14 May 2024, the State Taxation Amendment Bill 2024 (Vic) (Bill) was introduced into Parliament.
Relevantly, the Bill proposes to extend the holiday home exemption from the application of the vacancy residential land tax (VRLT) so that the exemption can also apply to land held by companies and trusts. This is a welcome development and is consistent with the government’s commitment back in November 2023.
Readers will recall that the VRLT was expanded late last year to apply to all residential land in Victoria that is vacant for 6 months or more (in aggregate) in the calendar year commencing 1 January 2024 (the 2025 land tax year).
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In its current form, the VRLT provides an exemption for holiday homes that were used for at least four weeks in the prior year, but the exemption is confined to holiday homes held by individuals and only a very limited type of trusts, and had no application to vacant land held by companies, unit trusts, or discretionary/family trusts.
The Bill proposes to introduce new section 88A into the Land Tax Act 2005, which will extend the holiday home exemption to companies and trusts that meet the relevant criteria. In particular, if the Bill becomes law, the holiday home exemption will apply to companies and trusts if the following requirements are met:
(a) Landowner requirement: the owner of the land (landowner) is a corporation or trustee of a trust;
(b) Date requirement: if the landowner owned the land on 28 November 2023 (or acquired it after that date but pursuant to a contract entered into on or before 28 November 2023) (Relevant Date) and the landowner has continuously owned the land since the Relevant Date;
(c) Ownership restrictions in landowner requirement: since the Relevant Date any changes in shareholdings (for a company), units (for a unit trust), beneficial interests (for a fixed trust) or specified beneficiaries (for a discretionary/family trust) of the landholder (if any) have only been between relatives;
(d) Ownership interest in landowner and PPR requirement:
- In the case of a company, unit trust, or fixed trust – at least 50% of the shares, units, or beneficial interest in the landowner are owned by one or more individuals who used and occupied other land in Australia as their principal place of residence (PPR); or
- In the case of a discretionary/family trust – a specified beneficiary of the landowner who is an individual (or a relative of that person) used and occupied other land in Australia as their PPR;
(e) Occupied as holiday home requirement: the land was used and occupied as a holiday home for at least 4 weeks (in total) by the relevant person referred to in paragraph (d) above; and
(f) The Commissioner is satisfied requirement: the Commissioner is satisfied that the land was used and occupied as a holiday home during the relevant calendar year having regard to:
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- the location of the land;
- the distance between the location of the land and the PPR of the relevant individual referred to at paragraph (d) above; and
- the nature and frequency of the use of the land.
Contiguous land
While the current law only allows the holiday home exemption to apply to one property of an owner, the Bill proposes an exception to this one holiday home requirement - and allows further land to qualify for the holiday home exemption where that additional land:
(a) Constitutes residential land from 1 January 2026 by virtue of being separately tilted land that has been unimproved for 5 years or more;
(b) Is contiguous with the holiday home land or separated from the holiday home land only by a road or railway or other similar area across or around which movement is reasonably possible;
(c) Enhances the holiday home land; and
(d) Is used solely for the private benefit and enjoyment of the person who uses and occupies the holiday home land.
Takeaway
While not yet law, this is not expected to be controversial and is expected to pass both houses without changes. It is proposed to have application from 1 January 2025 (the VRLT liability for the 2025 year is based on the status of the land during the calendar year 1 January 2024 to 31 December 2024).
It is noteworthy that the PPR requirement for a company and unit or fixed trust may not be met where the shares, units or beneficial interests are held via a discretionary trust. This is because the landowner and PPR requirement will only be met where a natural person/individual owns at least 50 per cent of the landowner. If the relevant shares/units/beneficial interests in the landowner are held via a trust, you should seek advice about the availability of this exemption.
Additionally, this extension of the holiday home exemption only applies for holiday homes held by companies or trusts as at the Relevant Date. Accordingly, to be eligible for this exemption, any future acquisitions of holiday homes should be made by individuals/natural persons.
This extension of the holiday home exemption to VRLT is a welcome development for many landowners, however, the Bill should be monitored closely to confirm its passage into law.
By Jeremy Makowski, partner, Coghlan Duffy
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