One of the most common questions our Commercial Real Estate team receives from non-profit entities is whether sharing use of their facilities with others will cause a land tax problem.
Here, we provide some guidance on this complex issue.
Land tax overview
All land in Victoria is subject to annual land tax, unless an exemption applies under the Land Tax Act 2005 (Vic).
Land tax is assessed annually on the basis of land ownership as at midnight on 31 December of the year preceding the assessment year. For example, the land you own at midnight on 31 December 2024 is used to calculate your land tax liability in 2025.
The “charitable use” exemption
Section 74 of the Land Tax Act provides an exemption from land tax for properties which are used and occupied by a charitable institution exclusively for charitable purposes.
Therefore, to gain an exemption under Section 74, two distinct limbs must be satisfied:
- The user is a charitable institution (noting that the State Revenue Office (SRO) has specific requirements on what qualifies as a charitable institution for these purposes – ACNC registration is not necessarily determinative, although is usually a good indicator)
- The property is used and occupied by that entity exclusively for charitable purposes (this requires a consideration of the purposes of the entity as set out in its governing document, along with consideration of the activities which it carries out at the property)
Where only a part of the land meets the requirements for the charitable use exemption, that part of the land is exempt from land tax, and the remaining land is subject to land tax unless another exemption applies to it.
It is important to be aware that the exemption is only available upon application to the SRO – generally you will only receive an exemption if you have applied for one.
The issue
The exclusivity requirement was added to Section 74 in 2021, and has created concern for many charities who had traditionally shared use of their facilities with the local community.
The SRO has issued a public ruling (Ruling LTA-009) which provides guidance on how the exemption is interpreted and applied by the SRO in practice, but it cannot – and does not – cover every possible scenario.
Non-profit organisations therefore need to be aware that the wording of the legislation and the associated policy creates some grey areas – some uses unquestionably qualify for exemption, but many other common uses are less certain.
The following table illustrates the issue based on a number of common scenarios, using a traffic light system:
| Green light | The property is used and occupied solely by one charitable institution for the charitable purposes of that entity – for example, a property owned by a church property trust and used by a church congregation exclusively for church activities. |
| Green light | The property is occupied by a charitable institution which allows other charitable institutions to use it for a nominal fee – such as a church which allows a domestic violence charity to hold weekly support groups in the church hall. |
| Amber light | The property is occupied by a charitable institution which allows other non-charitable entities to use it.
Our experience handling such matters with the SRO suggests that the level of risk from a land tax perspective depends on the nature and extent of the non-charitable use, and the fees which are paid by the non-charitable user.
At the low risk end is occasional use by a community group in exchange for a nominal donation. These kinds of uses will usually be viewed by the SRO as not affecting an existing charitable use exemption.
At the opposite end of the spectrum, regular use for extended periods for a fee equivalent or close to a market rent would be a high risk use.
The further along this spectrum, the greater the risk of triggering a land tax liability. Certainty can be obtained by applying to the SRO for a private ruling in respect of the specific property. |
| Amber light | The property is owned by a charitable institution, but leased to a residential tenant at a discounted rate (for example, a former church manse which is leased to a congregation member in need at 50% of the market rent would be a low-risk use). |
| Red light | The property is owned by a charitable institution, but leased to a commercial business. |
| Red light | The property is owned by a charitable institution, but leased to a residential tenant at market rates (for example, a former church manse which is leased to an unrelated third party). |
It is the property owner’s responsibility to report any incorrect assessment to the SRO each year – whether a property is being incorrectly accorded an exemption, or whether a property with an exempt use is being assessed for land tax. If a property is incorrectly accorded an exemption and the taxpayer does not notify the SRO, the SRO can impose heavy penalties if it picks up on the issue through its own investigations.
If you are uncertain about whether your property qualifies for exemption (whether you are receiving an exemption or not), it is therefore a good idea to seek advice from a lawyer or another professional advisor with specific expertise in the land tax field.
Where a charity shares use of their facilities with a third party, there are a number of steps which should be considered in order to reduce the risk of an unexpected land tax liability arising. These may include documenting the terms of the hire arrangement and, depending on the terms of the hire, notifying SRO of the arrangements. A lawyer with experience in the field can advise on whether any such steps are recommended in your specific circumstances, and assist you with putting the appropriate documentation into place.
How we help
The Commercial Real Estate Team at Moores has extensive experience in assisting non-profit organisations with land tax matters and can provide strategic advice tailored to your specific property use, helping to guard against an unexpected land tax liability.
Contact us
Please contact us for more detailed and tailored help.
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Disclaimer: This article provides general information only and is not intended to constitute legal advice. You should seek legal advice regarding the application of the law to you or your organisation.