The Victorian Government’s introduction of the State Tax Amendment Bill 2024 marks a significant shift in the landscape of property taxation. This bill, if passed, aims to broaden the holiday home exemption to include properties owned by companies and trusts, along with certain beneficiaries and their relatives. This article delves into the proposed specifics of the bill, the criteria for qualifying for the exemption, and the implications for property owners in Victoria.

Background

In December 2023, substantial changes were made to property taxes in Victoria, including the Vacant Residential Land Tax (VRLT). Starting from January 1, 2025, owners of residential properties in Victoria that are vacant for more than six months in the previous calendar year will be liable for the VRLT unless an exemption applies. One of the key exemptions under this tax is for ‘holiday homes’ that meet specific criteria.

The State Tax Amendment Bill 2024

The State Tax Amendment Bill 2024 seeks to expand the scope of the holiday home exemption. This will allow shareholders of companies, certain beneficiaries of trusts, and their relatives to qualify for the exemption for properties owned by these entities. The proposed changes are expected to pass into law by May 2024.

Criteria for Exemption

To qualify for the holiday home exemption under the proposed bill, companies and trusts must meet a series of stringent criteria. These include:

Ownership Date: The company or trustee must have either owned the land on November 28, 2023, or become the owner(s) of the land after that date under a contract of purchase entered into on or before November 28, 2023.

Continuous Ownership: The owner(s) must have owned the land continuously since the relevant date specified above.

Transfer Restrictions:

For companies, unit trusts, and fixed trusts, any transfer of shares, units, or beneficial interests in the trust property must be limited to transfers between ‘relatives.’

For discretionary trusts, any change in ‘specified beneficiaries’ must be limited to adding or removing a person who is a ‘relative’ of another specified beneficiary.

Principal Place of Residence (PPR) Requirement:

For companies, unit trusts, and fixed trusts, at least 50% of the shares, units, or beneficial interests in the trust property must be owned by one or more natural persons who used and occupied other land in Australia as a principal place of residence in the year preceding the relevant land tax year.

For discretionary trusts, a specified beneficiary who is a natural person, or a relative of that person, must have used and occupied other land in Australia as a principal place of residence in the year preceding the relevant land tax year.

Holiday Home Use:

The land must have been used and occupied as a holiday home for at least four weeks (either continuously or in aggregate) in the year preceding the relevant land tax year. This use must be by a ‘specified person,’ which includes a natural person referred to in the PPR requirement or their relative.

Commissioner’s Satisfaction: The Commissioner must be satisfied that the land was used and occupied as a holiday home in the year preceding the relevant land tax year.

Practical Implications

If a company or trust fails to meet these criteria, the property will not qualify for the holiday home exemption. Consequently, the property will be subject to the VRLT if it remains vacant for more than six months in the previous calendar year. This could have significant financial implications for property owners who do not comply with the exemption requirements.

Seeking Specialist Advice

To avoid the VRLT, companies and trusts must adhere to the specified criteria. Taxpayers with there legal and financial advisers should carefully review the Bill and legislation once passed and thoroughly examine the trust deeds. This ensures that all ownership and transfer requirements are met.

Given the complexities involved, it is essential for taxpayers to seek their own legal and financial professional advice. This is particularly important to ensure compliance with the detailed requirements and to avoid potential tax liabilities.

The State Tax Amendment Bill 2024 represents a significant change in the taxation of holiday homes in Victoria. By broadening the exemption to include properties owned by companies and trusts, along with their shareholders, beneficiaries, and relatives, the bill provides new opportunities for property owners to avoid the VRLT. However, meeting the stringent criteria is essential to qualify for the exemption. Property owners along with their legal advisers must be diligent in ensuring compliance to take full advantage of this legislative change.

*Legal Disclaimer – The information contained in this article is for general informational purposes only. It is not intended to constitute legal, tax, or financial advice, and should not be relied upon as such. Readers are advised to consult with a qualified legal professional to obtain advice with respect to any particular issue or problem.