Changes to Holiday Home exemption for Vacant Residential Land Tax
On 4 June 2024, the State Taxation Amendment Act 2024 (Act) received Royal Assent. The Act, amongst other significant taxation changes, amends the holiday home exemption by introducing new provisions to section 88A of the Land Tax Act 2005 (LTA). From 1 January 2025, the vacant residential land tax (VRLT) exemption for holiday homes, will be extended to include holiday homes where the land is owned by companies and trustees of trusts, provided the company or trustee meets the eligibility criteria for exemption.
To be eligible for the exemption from VRLT, the company or trustee of the trust must:
1. have owned the land for a continuous period from 28 November 2023, including contracts signed prior to 28 November but settlement not occurring until after that date (28 November 2023 being the date the extension of VRLT was announced in respect to all vacant residential property in Victoria);
2. have made no change to the beneficial ownership of the land since 28 November 2023 (with limited exceptions);
3. one or more ‘specified persons’ had their principal place of residence in Australia in the preceding tax year. Specified persons are natural persons who:
a. for a company – are the shareholder or shareholders who own a minimum of 50% of the shares in the company;
b. for the trustee of a unit trust scheme – are the unitholder or unitholders owning a minimum of 50% of the units in the unit trust scheme;
c. for the trustee of a fixed trust – are the beneficiaries holding a minimum of 50% of the beneficial interest in the trust property; and
d. for the trustees of a discretionary trust – are the ‘specified beneficiaries’ of the trust or their relatives. Specified beneficiaries being defined by the LTA as:
‘specified beneficiary, of a discretionary trust, means a beneficiary who is specifically named in the trust deed or specifically declared in writing pursuant to the trust deed as a beneficiary to or in whom, by the terms of the trust, the whole or any part of the trust income or property may be distributed or vested—
(a) in the event of the exercise of a power or discretion in favour of the beneficiary (whether or not that power is presently exercisable); or
(b) in the event that a discretion conferred under the trust is not exercised.’
4. one or more of the specified persons, or their relatives, used and occupied the land as their holiday home for at least 4 weeks in that year. This does not have to be a continuous period and can be aggregated; and
5. satisfy the Commissioner of State Revenue (Commissioner) that the land was genuinely used and occupied as a holiday home in the preceding tax year.
When considering whether the land was used and occupied as a holiday home, the Commissioner must have regard to the:
location of the land;
distance between the land and the principal place of residence of the specified persons; and
nature and frequency of the use of the land.
If the company or trustee of the trust are unable to satisfy the above eligibility criteria, then from 1 January 2025 onwards, they will be liable for VRLT if they own residential property in Victoria that is vacant for more than six months in the previous calendar year. This is likewise the case for any owner of residential property in Victoria who cannot satisfy the requirements for exemption. VRLT is assessed at 1% of the capital improved value of the land and applies in addition, but not limited to, base land tax.
This is a welcome change as previously, the VRLT exemption was restricted solely to holiday homes held by individuals who have an existing principal place of residence in Australia.
A further significant change is that exemption to VRLT will also apply to contiguous land to a holiday home. Meaning that a separate parcel of land, which is attached to the land on which a holiday home is situated, may also be exempt from VRLT provided that the contiguous land:
is owned by the same owner;
enhances the holiday home; and
is used solely for the private benefit of the person who uses the holiday home, such as a garden, tennis court or swimming pool.
These changes are a timely reminder for those owning holiday homes in Victoria to keep proper records of their use and occupancy of the land to ensure that they are able to meet the requirements for exemption.
Alasdair Woodford
Principal Lawyer
T: 03 5225 5217 | M: 0436 456 144
E: awoodford@ha.legal
Tayla Berger
Senior Associate
T 03 5226 8559 | M 0407 825 365
E tberger@ha.legal
Joseph Flanagan
Associate
T: 03 5226 8504
E: jflanagan@ha.legal
Ben Smith
Lawyer
T: 03 5225 5262
E: bsmith@ha.legal
