Vacant Residential Land Tax—Changes to ‘Holiday Home’ Exemption

In December 2023, substantial changes were made to property taxes in Victoria including Vacant Residential Land Tax (VRLT).

From 1 January 2025, owners of residential property in Victoria that are vacant for more than six months in the previous calendar year are liable for the VRLT unless an exemption applies.

‘Holiday homes’ that comply with certain criteria are one of the key exemptions.

The Victorian Government has introduced the State Tax Amendment Bill 2024 which, amongst other taxation changes, will (if passed) broaden the holiday home exemption to allow shareholders of companies, as well as certain beneficiaries of trusts and relatives of those shareholders and beneficiaries, to satisfy the exemption for a property owned by a company or trust.

The proposed changes are expected to pass into law in May 2024.

Relevant criteria for companies and trusts to qualify for the exemption include:

1. The company/trustee (as applicable) must have either:

• owned the land on 28 November 2023 (this being the date that extension of the VRLT to the whole of Victoria was announced), or
• become the owner(s) of the land on a date after 28 November 2023 under a contract of purchase entered into on or before 28 November 2023.

2. The owner(s) must have owned the land continuously since the relevant date set out in 1 above.

3. Since the relevant date:

• for a company/unit trust/fixed trust — any transfer of shares/units/beneficial interests in trust property (as applicable) has been limited to transfers between ‘relatives’ or
• for a discretionary trust — any change in ‘specified beneficiary’ has been limited to a change to add or remove a person who is a ‘relative’ of another specified beneficiary.

‘Specified beneficiary’ and ‘relative’ are already expressly defined in the Land Tax Act. ‘Specified beneficiary’ is defined 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. The principal place of residence or ‘PPR requirement’ is satisfied — this requires that:

• for a company/unit trust/ fixed trust — at least 50% of the shares/units/beneficial interests in trust property (as applicable) are owned by one or more natural persons who, in the year preceding the relevant land tax year, used and occupied other land in Australia as a principal place of residence, or

• for a discretionary trust — a ‘specified beneficiary’ who is a natural person, or a ‘relative’ of that person, has, in the year preceding the relevant land tax year, used and occupied other land in Australia as a principal place of residence.

5. In the year preceding the relevant land tax year, the land has been used and occupied as a holiday home for a period of at least 4 weeks (whether continuous or in aggregate) by a ‘specified person’, this being defined as:

• for a company/unit trust/fixed trust — a ‘natural person’ referred to in the ‘PPR requirement’ above, or a relative of that natural person, or
• for a discretionary trust — a ‘natural person’ referred to in the ‘PPR requirement’ above, or a relative of that natural person.

6. The Commissioner is satisfied that the land was used and occupied as a holiday home in the year preceding the relevant land tax year.

As always, practitioners should read the Bill and legislation once passed, and check client documents such as trust deeds carefully before advising on the exemption. Practitioners without experience in this area should consider either referring the client elsewhere for specialist advice, or seek instructions to engage specialist advice.