Proposed Vacant Residential Land Tax changes for holiday homes in trusts or companies

Vacant Residential Land Tax (VRLT) has been a hot topic over the last 12 months, with a number of changes introduced to impose further land tax on vacant properties in Victoria. Our recent articles set out the history of these recent changes:

On 14 May 2024, the State Taxation Amendment Bill 2024 was introduced in Victoria which proposed to address one of the current limitations of the VRLT legalisation – the land tax treatment of holiday homes owned in discretionary trusts or companies. The changes proposed have not yet been enacted.

The proposed changes purport to extend the exemption from VRLT for holiday homes held in a family trust (and some companies and unit trusts), but with some strict eligibility requirements. 

At present, the holiday home exemption will usually only apply to personally-owned properties – that is, where the registered proprietor is an individual. The exemption currently operates such that if the property is used by the ‘owner’ or their ‘relatives’ for a total of four weeks of the 2024 year, VRLT will not apply. As it stands, properties owned by trustees of discretionary trusts or companies (as the ‘owner’) cannot qualify for this exemption.

Proposed eligibility requirements

The proposed amendment will address this restriction for existing trust- or company-owned holiday homes, extending the exemption so that it is available in the following circumstances:

  • The property has been continuously owned by the trustee of the trust or the company since 28 November 2023 (or was purchased under a contract of sale entered into prior to that date).
  • No changes have been made to the specified beneficiaries of the trust (or in the case of a company, the shares owned by relatives) since 28 November 2023, save for adding or removing a person who is a relative of another specified beneficiary.
  • A natural person specified beneficiary of the trust or their relative (or in the case of a company, a natural person shareholder with at least 50% of the issued shares) used and occupied the property as a holiday home for at least four weeks of the preceding year.
  • That person used and occupied other land in Australia as their principal place of residence.
  • The Commissioner of State Revenue is satisfied that the land was used and occupied as a holiday home (having regard to the location, distance between the holiday home and the principal place of residence of the user, and the nature and frequency of the use of the land.

New acquisitions & inherited holiday homes

Importantly, these changes do not include holiday homes acquired via discretionary trust structures or companies after 28 November 2023, and would also seem to exclude holiday homes being inherited via a testamentary trust structure under a deceased owner’s Will, where the owner died after 28 November 2023.

Work test exemption

The amendments also do not extend the alternative “work test” exemption to VRLT to trustees or companies. That means if the property is used by a person to stay there for work purposes, the property still needs to be held in the personal name of that individual in order to qualify for exemption.

Companies and unit trusts

In cases where holiday homes are owned via companies or unit trust structures, at least 50% of the shares or units in such structures will need to be held by natural persons who hold a principal place of residence elsewhere in Victoria or the other Australian states. This requirement is going to be restrictive, as it is typical for shares in companies and units in unit trusts to be held via alternative structures, such as discretionary trusts.  

Are the headlines too good to be true?

While the proposed changes to this law go some way to provide comfort to those who already own their homes via family trust or company structures, these anticipated provisions seek to ‘grandfather’ the changes only to existing ownership structures, and do not extend to acquisitions since 28 November 2023 or beyond (including for inherited holiday homes via testamentary trusts). 

How we can help

The technical and strict eligibility requirements for the holiday home VRLT exemption require careful consideration of the use of the relevant property and the terms of the relevant trust deed to verify whether the proposed exemption can apply.

Our Wills, Estate Planning and Structuring Team and our Residential Property Team are across the complex issues raised by the ever-changing VRLT, land tax and structuring areas and would be glad to help you or your clients to navigate the new and proposed rules. 

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.