Most schools will be aware that land used for school purposes generally qualifies for an exemption from land tax in Victoria.
However, there are a number of nuances which can impact on this general position. In this article we highlight some of the potential traps which schools and other education providers should be aware of.
Land tax
Vacant residential land tax (VRLT)
There are three specific areas where we have noticed some of our education clients getting caught out with regard to land tax and VRLT.
Trap 1 – Not applying for an exemption
The charitable land tax exemption is only available upon application to the SRO. Certain evidence must be presented in support of the application, including evidence of specific non-profit provisions in the school’s constitution and evidence demonstrating the use of the land in question.
Once an exemption is granted, it is ongoing so long as the use of the land continues to satisfy the criteria for exemption.
If the use of the land changes so that it no longer qualifies for exemption, the SRO must be notified. If not, then penalty tax may be applied on top of normal land tax once the issue is detected.
Trap 2 – Sharing use of school facilities
Sharing use of school facilities can impact on your exemption status. In brief:
A more detailed exploration of the issue of shared use can be found in our previous article ‘Hiring out the hall in 2025 – Land tax and facility hire for charities‘.
If you are unsure about whether your particular shared use arrangements could impact on your land tax exemption, guidance can be sought from the SRO in the form of a private ruling application.
Trap 3 – Overlooking VRLT reporting
It is common for schools to have residential landholdings – these properties may be used as a principal’s or caretaker’s residence, be rented out to third parties, or held for future school development.
These properties will be subject to land tax, but they may also be subject to VRLT if they are not occupied by a person as their PPR for more than 6 months of the year. If such a vacancy does occur, then a VRLT notification needs to be made to the SRO by 15 February of the following year, otherwise penalty tax may be imposed on top of VRLT.
The Commercial Real Estate team at Moores has extensive experience assisting schools and other education providers in navigating the land tax and VRLT rules, and we would be glad to help you with any questions, exemption applications, private ruling applications or reporting in this space.
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.
As you may have picked up in recent media, the Victorian Government has passed new legislation which will, over time, replace transfer (stamp) duty with a new tax scheme for commercial and industrial properties – the Commercial and Industrial Property Tax (‘CIPT’) scheme.
The Commercial and Industrial Property Tax Reform Act 2024 (Vic) (‘CIPT Act’) came into effect from 1 July 2024 and affects all contracts of sale for commercial and industrial property which are signed and settled after 1 July 2024.
Read on to find out the key facts which organisations need to know about the new scheme.
CIPT will be an annual payment in addition to existing rates and taxes on the land. The rate of CIPT will be equal to 1% of the unimproved value of the land. CIPT will apply:
CIPT will commence to be payable by the owner of the land at the time when the 10-year transition period expires.
‘Qualifying Use’ is defined in the CIPT Act as a property which:
These codes will be displayed on the property’s council rates statement, or a land tax clearance certificate provided by the State Revenue Office.
Properties with a mixed use will be within the CIPT net where the property is used primarily for a Qualifying Use.
Properties with a Qualifying Use will enter the CIPT scheme where one of the following four property dealings occurs after 30 June 2024:
Importantly for organisations with non-profit status, the sale of land with a Qualifying Use is not an entry transaction where the sale is exempt from duty pursuant to the Duties Act 2000. For example, where a charitable entity purchases land with a qualifying use and is entitled to an exemption from transfer duty, that purchase is not an entry transaction and therefore will not trigger entry into the CIPT scheme.
The following process will apply to any sale of land with a Qualifying Use where the contract of sale was signed after 1 July 2024 and no exemption is available:
Importantly, vendors cannot adjust CIPT under the contract of sale or otherwise make the purchaser liable to reimburse the vendor for any CIPT liability, except where the sale price exceeds the ‘high value threshold’ (currently set at $10 million).
Landlords also must not require any residential or retail tenants (as defined by the Residential Tenancies Act 1997 and Retail Leases Act 2003 respectively) from paying or reimbursing the CIPT. However, there is no restriction from recovering CIPT from non-retail commercial tenants.
The Victorian Government is offering transitional loan schemes to finance the payment of transfer duty on the Entry Transaction. This is an optional program to allow purchasers to spread out the cost of transfer duty over a 10 year period at a fixed interest rate.
The loan will be secured with a statutory charge over the property and must be repaid over the 10 years following settlement (i.e. the transition period).
If, during the transition period, the property ceases to be used for a qualifying use (e.g. it is redeveloped into residential premises), no CIPT will be payable. However, the next sale of the property will be subject to the usual transfer duty.
If the transition loan scheme applies to the property, the loan must be repaid immediately upon the change of use or sale of the property.
CIPT is chargeable on land which, at 31 December in the preceding year:
Therefore, properties which qualify for an exemption from land tax (such as properties used and occupied exclusively for charitable purposes) will also receive an exemption from paying CIPT.
The Commercial Real Estate team at Moores has extensive experience in all types of property dealings and can provide tailored advice on how CIPT may impact on your organisation’s properties.
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.
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:
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.
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.
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.
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).
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.
Please contact us for more detailed and tailored help
As you would likely be aware from the popular media, there are some significant changes to the Victorian land tax landscape in 2024. Unfortunately, the complexity of the legislation and the messaging coming from the Government and Opposition can mean it’s difficult to work out what those changes mean in a practical sense.
We cut through the confusion and explain (in simple terms) the things you need to have on your radar going into the new year.
The vacant residential land tax (VRLT) regime is being expanded to apply throughout Victoria.
Introduced at the start of 2018, the VRLT regime originally only applied to properties in inner and middle Melbourne (ie. properties in certain specified local government areas within a ring around the CBD). The tax is payable for a calendar year when the property was vacant for more than 6 months in the previous calendar year. Owners have a positive obligation to notify the State Revenue Office if that is the case.
From 1 January 2025, the catchment area for VRLT has been expanded to the whole of Victoria. This means that the way the property is used throughout 2024 will determine whether VRLT is payable for the 2025 year.
The exemptions from VRLT can be highly technical, and care should be taken in relying upon general advice or media summaries. The main exemptions are:
Action to take: If you own a residential property which is currently vacant or used for less than six months cumulatively each year, consider whether it could qualify for any of the exemptions. If not, you may wish to look at the options to ensure that it is occupied for more than six months this year – for example, by leasing it to a residential tenant.
From 1 January 2025, a new, progressive, rate of VRLT will apply based on the number of consecutive tax years the land has been liable for VRLT.
Previously, VRLT was fixed at 1% of the property’s capital improved value (CIV). Under the new rules, VRLT will be calculated on a progressive rate:
By way of illustration, Tom inherited a home in Daylesford from his mother, who died 4 years ago. The CIV shown on the council rates notice is $850,000. Tom occasionally visits the property for a weekend to tend to the garden and do some maintenance on the home, but it is otherwise empty while he decides whether he wants to live there in his retirement.
If Tom continues this pattern of use, then in 2025 he will be liable for VRLT of $8,500 on the home. This will increase to $17,000 in 2026, and $25,500 from 2027 onwards.
Action to take: If you own any unoccupied residential property (whether in your own name, or through a company or trust), consider the possible financial implications of the changes. Check the CIV on your current council rates assessment – use this figure to calculate your potential VRLT liability and help inform your decision-making about how you will deal with the property this year and future years.
Previously, VRLT only applied to land with a residence constructed on it. From 1 January 2026, however, the tax will extend to some unimproved residential land, ie. residential land without any residence on it.
VRLT will apply to vacant land which:
The rationale given for this change is to encourage development (and discourage land banking), with a view to increasing housing supply in metropolitan Melbourne.
Action to take: If you own vacant land which is unlikely to be developed in the next two years, consider whether a sale is appropriate and if not, factor in the potential VRLT liability from 2026.
Vendors are prohibited from apportioning land tax to a purchaser under contracts of sale entered into from 1 January 2024. This is a significant change to the standard practice of apportioning land tax along with other periodic statutory outgoings such as council rates and water rates – previously, the vendor would bear outgoings only up to the day of settlement. Now the vendor must pay the land tax for the whole year.
There is no contracting out of this provision – it is now an offence for a vendor to enter into a contract of sale that purports to require the purchaser to pay an amount for, or towards, the vendor’s land tax. However, it is open to vendors to seek to recover the difference through a higher asking price.
The prohibition does not apply to contracts where the consideration is $10 million or more (noting that this amount is subject to indexation).
Action to take: If you’re entering into a contract for the sale or purchase of a property, ensure that it doesn’t include a provision apportioning land tax between vendor and purchaser.
From 1 January 2024, land which is subject to “conservation covenant” is entitled to an exemption from land tax. To qualify for exemption, the landowner must have entered into a covenant with Trust for Nature (Victoria) for the conservation of the land under the Victorian Conservation Trust Act 1972 (known as a “Trust for Nature” covenant). The exemption is available only upon application and can apply to part of a land parcel if only part is subject to the covenant.
Action to take: If you own land which is subject to a Trust for Nature covenant or are considering purchasing such land, submit a land tax exemption application.
The property team at Moores has extensive experience in land tax matters and can provide strategic advice tailored to your specific property ownership situation, giving you a road map through the confusion.
If you would like to explore your options in this regard, please get in touch with us and we’ll help you work out a solid plan.
Vendors are prohibited from apportioning land tax to a purchaser under contracts of sale entered into from 1 January 2024. There is no contracting out of this provision – it is now an offence for a vendor to enter into a contract of sale that purports to require the purchaser to pay an amount for, or towards, the vendor’s land tax if the consideration for the property is under $10 million (noting that this amount is subject to indexation).
This is a significant change to the standard practice of apportioning land tax along with other periodic statutory outgoings such as council rates and water rates, and is welcome news for charitable organisations purchasing property – they will no longer have to contribute to the vendor’s land tax.
Action to take: If your organisation is purchasing property, ensure the contract doesn’t include a provision apportioning land tax between vendor and purchaser. In addition, consider seeking advice about any exemptions which could apply once your organisation owns the property.
Action to take: If your organisation owns a residential property which is currently vacant or used for less than 6 months cumulatively each year, consider renting it out or seek legal advice about whether the property could qualify for any of the exemptions.
By way of illustration, Do Good Ltd purchased a residential property in Daylesford last year with a view to potentially setting up a retreat for ill children and their families. The CIV shown on the council rates notice is $850,000. The Board is undecided about plans for future use at this stage and for now, the property is sitting vacant with staff visiting occasionally for maintenance purposes or for weekend breaks.
If Do Good Ltd continues this pattern of use, then in 2025 it will be liable for VRLT of $8,500 on the property. This will increase to $17,000 in 2026, and $25,500 from 2027 onwards.
Action to take: Consider unoccupied residential property you might own and the budget implications. Check the CIV on your current council rates assessment– use this figure to calculate the potential VRLT liability and help inform your Board’s decision-making about how you will deal with the property this year and future years.
Action to take: If your organisation holds vacant land, consider the likely time frame for development and factor in the potential VRLT liability if development is unlikely to take place within the next 2 years.
Action to take: If your organisation owns land which is subject to a Trust for Nature covenant or is considering purchasing such land, ensure that a land tax exemption application is submitted for the property.
The changes to the vacant residential land tax (VRLT) laws flagged in our recent article have now passed into law, with the new bill receiving Royal Assent on 12 December 2023.
After updates made during Parliamentary debate, these changes now address one of the major concerns affecting people with holiday homes located in Victoria raised in our previous article, but still leaves major uncertainty for the owners of holiday homes which are owned in trusts or company structures.
The ‘holiday home’ exemption from VRLT will now apply where the owner or the owner’s relatives use and occupy the holiday home for four weeks each year (whether continuous or in aggregate). Previously, the exemption only applied to use by the owners themselves.
‘Relatives’ include the owner’s spouse/domestic partner, lineal ancestors and descendants, siblings, and includes the owner’s spouses siblings, as well as spouses of the owner’s children and siblings.
This is welcome news for families who share use of a holiday home held in personal names.
While the changes made by Parliament go some way in providing a common-sense approach to the exemption in the context of the VRLT catchment area being expanded State-wide, what remains outstanding is the application of VRLT to holiday homes owned within a company or trust structure.
This issue was considered in Parliament, but was not addressed in the final bill. Attorney-General Jaclyn Symes has stated that the government is “committed” to extending the exemption to holiday homes owned this way, but indicated that due to a “complexity” in incorporating such changes, this issue will be reconsidered in the first half of 2024.
Therefore at this stage, there is no legislated exemption from VRLT for holiday homes owned in trusts or company structures, and unless the Government follows through on the comments above, holiday homes held under such structures will be liable for VRLT from 2025.
Because there is no guarantee that changes will be made in this regard, owners of such properties would be wise to consider whether they wish to lease those properties out for at least 6 months of the 2024 year so as to ensure they won’t receive a VRLT assessment for 2025.
The team at Moores is across the complex issues raised by the VRLT changes, and would be glad to help you or your clients to navigate the new rules.
We can assist with:
Update: December 2023 – The changes to the vacant residential land tax (VRLT) laws have now passed into law, with the new bill receiving Royal Assent on 12 November 2023. Read more in our article here.
The Victorian government has this week announced significant changes to the vacant residential land tax (VRLT), which could have major impact on owners of holiday homes.
To avoid incurring an unexpected land tax liability, anyone owning a holiday home in Victoria will need to give careful consideration to the new rules and plan accordingly.
VRLT is an annual tax collected by the State Revenue Office. It is separate and additional to standard land tax.
VRLT is calculated as 1% of the capital improved value of the property – this means a property with a capital improved value of $1.5m would incur a VRLT bill of $15,000 annually.
It is important to note that this is different to standard land tax, which is calculated on ‘site value’ (unimproved value).
Currently, only properties in the inner and middle suburbs of Melbourne are caught by the VRLT net.
Properties in those areas are liable for VRLT in any calendar year where the property ticks all of these boxes:
The exemptions from VRLT include the following scenarios:
Importantly, residential properties owned by companies, organisations and trusts are generally not eligible for the first two exemptions.
The Government is proposing to extend the current VRLT rules to the whole of Victoria with effect from 1 January 2025.
Further amendments will also be made to expand the type of land which will be subject to VRLT.
Some additional VRLT exemptions have been proposed, including:
These further amendments and additional exemptions are scheduled to come into force on 1 January 2026.
If the proposed changes are passed by the Parliament, there are a lot of people who could potentially receive a hefty and unexpected VRLT bill in 2025.
To reduce the chances of being one of those people, follow these tips: