In welcome news for the charitable sector, a recent Supreme Court of Victoria case has significantly expanded the types of land use which are eligible for a charitable land tax exemption.
In University of Melbourne v Commission of State Revenue , the Court has interpreted the term ‘used by a charitable institution exclusively for charitable purposes’ in a much wider fashion than the State Revenue Office (SRO) has traditionally applied it, opening up the possibility of land tax exemption in circumstances where there is third party use of the land by a non-charitable entity.
The University of Melbourne leased University land to a student accommodation developer to enable a 648 bed student accommodation development, in line with the University’s strategy for student accommodation. The developer in turn engaged a student accommodation operator to operate the accommodation, who was required to do so in line with specific student accommodation requirements of the University.
In essence, the arrangements were designed to ensure that the developer and operator used the land in line with the purposes for which the University would have used it if it were to operate the accommodation facility itself.
The University took the position that the lease was a way of the University using the land for student accommodation purposes, which is a function noted in the preamble to the University’s establishing Act. The University argued that the provision of student accommodation by a third party operator (at the request of the University) should be considered part of the University’s charitable use of the land and therefore enable an exemption from land tax for the site.
Section 74 of the Land Tax Act 2005 (Vic) contemplates an exemption from land tax where land is used by a charitable institution exclusively for charitable purposes. Importantly, exemption is not automatic – it is granted only in response to an application.
In order for land to qualify for a land tax exemption, the taxpayer must satisfy the SRO that:
- the entity utilising the property is a charitable institution; and
- the land is ‘used’ by that charitable institution ‘exclusively’ for a charitable purpose; or
- that the land is vacant and is held for future charitable use.
The SRO decision
The Commissioner of State Revenue took the view that where the student accommodation service was being provided by a commercial operator under a lease, the land was not entitled to an exemption under section 74 because the land was not ‘used’ by the University, but rather by the developer and operator.
The Supreme Court decision
The University appealed the SRO decision and the matter was brought before the Supreme Court. The Court examined the two key words in the exemption:
- ‘used’, with regard to whether the University must use the land itself for its charitable purpose or if a third party developer and/or operator can use the land for the charitable purpose of the University; and
- ‘exclusively’, with regard to whether that term requires use of the land exclusively by the University, or allows use for the wider charitable purpose of the University.
The Court held that in both cases, the wider meaning should be adopted and therefore found that in these circumstances, the use of the land by the third party could be considered to be a use for the charitable purpose of the University. Significantly, the Court held that whether the University is the actual entity using the land or not is immaterial in assessing whether the land is being used for the charitable purpose of the University under section 74.
How we can help
Moores has assisted numerous charities in obtaining exemptions from land tax on charitable grounds.
The Supreme Court’s expansion of the scope of section 74 to include land used by third party operators for the purposes of the land-owning charitable organisation opens the door for exemptions which may not have previously been possible. Given the significance of the departure from the usual SRO position which the decision represents, we would not be surprised if a public ruling is issued to ameliorate the effect of the decision for practical purposes.
However, it’s not guaranteed that the SRO will take such action and any charities who are potentially able to claim an exemption under the expanded interpretation would be wise to submit an application as soon as possible.
Moores is ready and able to:
- provide advice regarding eligibility in circumstances where a third party is using the land; and
- assist charities in making applications for charitable exemption from land tax in these circumstances.
If you need assistance with seeking a charitable exemption for land tax or council rates, please do not hesitate to contact us.