The State Revenue Office (SRO) has issued a new ruling, LTA-009 (Ruling), in relation to the land tax exemptions available to charitable organisations. The Ruling applies to the 2022 land tax year onward and reflects the recent amendments to Section 74 of the Land Tax Act 2005 (Vic) (the Act) introduced by the Windfall Gains Tax and State Taxation and Other Acts Further Amendment Bill 2021 (Amendments).
Overview of Section 74 exemptions
As a result of the amendments, land is exempt from land tax under Section 74(1) of the Act if the Commissioner of State Revenue makes a determination that:
- the land is used and occupied by a charitable institution exclusively for charitable purposes (Current Charity Exemption); or
- the land is owned by a charitable institution, vacant, and declared by its owner to be held for future use and occupation by a charitable institution exclusively for charitable purposes (Vacant Land Charity Exemption); or
- the land is owned by a charitable institution, leased for outdoor sporting/outdoor recreational/outdoor cultural or similar activities, and is available for use for one or more of those activities by the public (Outdoor Leasing Charity Exemption).
The amended exemptions apply from the 2022 land tax year. Previous SRO rulings LTA-004 and LTA-005 remain applicable for 2021 and prior land tax years.
Current Charity Exemption
The amendments and the Ruling make significant amendments to the Current Charity Exemption. From the 2022 land tax year, charities will be required to demonstrate that land is used and occupied by the charity exclusively for charitable purposes.
The words ‘and occupied’ were inserted into Section 74 as a result of the Supreme Court decision in University of Melbourne v Commissioner of State Revenue [2021] VSC 156. In that case the Court adopted a broad interpretation of the word ‘used’, concluding that it was not synonymous with ‘occupy’. As a result, the Court ruled that the exemption could be applied in circumstances where a charity leased land to a third party commercial operator provided the use of the land was exclusively for charitable purposes. The effect of the amendments and the Ruling, if applied to these circumstances, is that the exemption is unlikely to apply.
The question of whether an exemption applies will depend on the facts of each matter. However, important considerations include:
- a charity who owns land may not be in occupation of that land if it is leased to a third party;
- a charity is likely to be in occupation of land which is leased to the charity irrespective of whether the landowner is of non-charitable status;
- a charity is likely to be in occupation of land it owns or leases from a landowner even where it engages a service provider under contract or licence to provide certain goods and services on the land;
- where a charity leases land to provide accommodation to a tenant at a nominal rate as part of the charity’s broader activities, occupation may be established provided the charity can demonstrate it provides substantial on-site care services, maintains common areas and amenities, retains relative control of public access or otherwise generally maintains sufficient measure of control of the premises.
Vacant Land Charity Exemption
In order for the Vacant Land Charity Exemption to apply from the 2022 land tax year, the Commissioner must be satisfied that the land will be eligible for the Current Charity Exemption within 2 years, or a longer period approved by the Commissioner.
The exemption will cease if the charity fails to use and occupy the land exclusively for its charitable purposes at the end of the exemption period.
In practical terms, the introduction of the term ‘and occupied’ to the Current Charity Exemption means that charities seeking exemption under the Vacant Land Charity Exemption must be able to demonstrate there are no distinct barriers to physical occupation of the land within 2 years, or otherwise demonstrate when occupation can be assumed if applying for a longer exemption period.
Outdoor Leasing Charity Exemption
The amendments incorporate the Outdoor Leasing Charity Exemption into Section 74 and add the requirement that the land subject of the exemption be owned by a charity.
Prior to the amendments, the exemption was found at Section 71, and the previous requirements still apply for 2021 and prior land tax years.
Applying for or re-evaluating a Section 74 exemption
An application for an exemption under Section 74 must be submitted in writing to the Commissioner. The application must clearly outline the grounds on which the exemption is sought and provide the Commissioner with any information the Commissioner requests for the purposes of making a determination.
How we can help
At Russell Kennedy we have an expert Property and Development team that have the skills and expertise to assist charitable organisations with reviewing their eligibility for land tax exemptions. Please contact Rosemary Southgate or Mark McKinley if you require assistance.
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