Surcharge for absentee owners of land
All property in Victoria is subject to land tax, unless an exemption applies or the property is below the threshold (which is currently $250,000). An assessment is made on the value of all your taxable property at midnight on 31 December each year to determine the amount of land tax payable for the following year.
As of 1 January 2016, absentee owners of all types of Victorian land have been required to pay a surcharge in addition to the land tax already payable. Between 1 January 2016 and 31 December 2016, the absentee owner surcharge was 0.5%. From 1 January 2017, the absentee owner surcharge has increased to 1.5%.
What is an absentee owner?
An absentee owner is an absentee individual, absentee corporation or a trustee of an absentee trust that owns land. There are different implications for each of the different trust types but for the purposes of this update, we will focus on discretionary trusts.
An absentee individual is any individual who:
- is not an Australian citizen or permanent resident;
- does not ordinarily reside in Australia, and
- was absent from Australia either:
- on 31 December of the year prior to the tax year, or
- for more than six months in total in the calendar year prior to the tax year.
An absentee corporation is a corporation that is incorporated outside of Australia or a corporation in which an absentee owner has a controlling interest.
An absentee owner has a controlling interest in a corporation if the absentee owner, or that owner acting together with another absentee owner:
- can control the composition of the board of the corporation; or
- is in a position to cast or control the casting of more than 50% of votes at a general meeting of the corporation; or
- hold more than 50% of the issued share capital of the corporation.
However, under the Land Tax Act 2005 (Vic) certain absentee owners may be exempt so that they are not deemed to have a controlling interest. The Treasurer has published guidelines advising that companies are not intended to be subject to the absentee owner surcharge regime if they conduct a commercial operation in Australia and their commercial activities make a strong and positive contribution to the Victorian economy and community by engaging local labour and utilising local materials and services.
An absentee trust is a trust under which at least one beneficiary is an absentee owner that:
- has a beneficial interest in land subject to a fixed trust; or
- is a unitholder in a unit trust scheme; or
- is a specified beneficiary of a discretionary trust.
An absentee trust is a discretionary trust under which at least one specified beneficiary is an absentee owner.
The State Revenue Office’s (SRO) position is that a specified beneficiary is a beneficiary who may receive income or property from the trust and is specifically named in the trust deed that establishes the discretionary trust. However, a specified beneficiary is not the same as a ‘taker in default’ or a nominated beneficiary.
This means that an absentee owner can be in the class of general beneficiaries without the discretionary trust being automatically classed as an absentee trust.
An introduction to Victorian land tax
Up to 2.25% land tax is payable each calendar year (sec. 8 LTAV 2005) by the owner or deemed owner of Victorian land (sec. 10 LTAV 2005) on the aggregated taxable value of Victorian land as at 31 December of the preceding year (sec. 19 and sec. 35 LTAV 2005), unless exempt.
From 1 July 2006 an additional 0.375% trust land tax surcharge is levied on Victorian land owned or deemed owned by a trustee of a trust with landholding of $25,000 or more, phased out for landholdings exceeding $1,800,000 and reducing to nil for trusts with landholdings exceeding $3,000,000 unless exempt land, an exempt trust or the trustee nominates a beneficiary or unitholder to be the deemed owner for land tax liability (sec. 46A and 18 LTAV 2005).
Between 1 July 2015 and 31 December 2016, an additional 0.5% and from 1 January 2017 an additional 1.5% absentee owner land tax surcharge is payable each calendar year by the absentee owner or deemed absentee owner of that Victorian land, unless exempt (sec. 46IA LTAV 2005).
From 1 January 2018, 1% vacant residential land tax is payable each calendar year (sec. 35(3) LTAV 2005) by the owners of residential land in specific inner city Councils (sec. 34A and sec. 34E LTAV 2005) which is not used and occupied for more than six continuous or aggregate months in the preceding year by the owner (or permitted occupant or individual tenant) as a principal place of residence (or during no more than two years construction or refurbishment) (sec. 34C(1) LTAV 2005) on the capital improved value of the land as at 31 December of the preceding year, unless exempt. Feel free to contact us at anytime. We are a team of professional and tax advisor Sydney providing a complete range of accounting, taxation and business services to clients throughout Australia.
The primary land tax exemptions include those for:
- your principal place of residence (PPR),
- primary production land (PPL),
- charities, and
- rooming houses.
Other land tax exemptions are those for:
- Crown land
- Municipal and public land
- Public statutory authority
- Armed services personnel
- Friendly societies
- Sporting, recreational or cultural land owned by certain non-profit organisations
- Land leased for outdoor sporting, recreational or cultural activities by members of the public
- Health centres and services
- Residential care facilities and supported residential services
- Residential services for people with disabilities
- Retirement villages
- Caravan parks
- Agricultural shows and farm field machinery days