Vacant residential land tax (VRLT), introduced in Victoria in 2017 for vacant properties in the middle and inner suburbs of Melbourne, has now been expanded to cover the whole State.  This means that any residential property that is not used and occupied for more than 6 months during calendar year 2024 could be subject to this tax.

What follows is a general overview of the key points and exemptions.  There are other exemptions and residential land factors that can be relevant beyond what is covered here.  This includes deceased estates, uninhabitable land, re-zoned land and land that changes hands during the year.

What is the tax?

The tax is in addition to Land Tax and is levied as:

• 1% of Capital Improved Value (CIV) for the first year vacant; then

• 2% of CIV for a second consecutive year; and

• 3% of CIV for a third consecutive year

Example

Residential property with land worth $1,000,000 and CIV of $1,250,000 is vacant for the year.  The land taxes (excluding absentee surcharges) for the first year are:

 Land Tax (2024 rates) VRLT (first year) Total

Individual or company land owner   $4,650 $12,500 $17,150

Trust land owner   $8,163 $12,500 $20,663

When is a property “vacant”?

A property is considered vacant if it has not been used and occupied for at least 6 months during the year.  The property needs to be occupied by the owner or the owner’s permitted occupier as their principal residence, or a person under a lease or short-term letting arrangement.

The use and occupation does not need to be continuous.  But it is based on actual use and this should not be confused with the concept of a property being ‘available for rent’ as being sufficient to claim income tax deductions.

For example, a property that is rented out using a platform like Airbnb on and off for over six months during the calendar year would not be vacant and would be exempt from VRLT.  In contrast, a property that is advertised on Airbnb and with an agent for the whole year, but is only used by tenants for 15 weeks of the year would be considered vacant as actual use is under 6 months.  In the latter scenario, a landowner would have to rely on a holiday house exemption if available to avoid imposition of VRLT.

What are the main exemptions?

There are several exemptions from VRLT:

• If the property is exempt from Land Tax it is exempt from VRLT

• Use as a place of work or business – occupied at least 140 days a year where the owner also has another principal residence

• Holiday home – A landowner can have one holiday home whilst also owning and occupying a principal residence and must use it as a holiday home for at least 28 days during the year

A closer look at the holiday home exemption is here.

Do trusts and companies qualify for exemptions?

It depends on when the property was acquired and who is using it.

A trust or company can apply the holiday home or business use exemptions, but only if the property is used by certain specified people and the entity owned the land in question on and before 28 November 2023.  Therefore, for a discretionary trust, the people named in the trust deed and in what role/capacity will be relevant.

Given the requirement to have held the asset on 28 November 2023, VRLT is now an important consideration when looking at ownership structures for residential properties that will not be consistently rented or leased to tenants.

What is the landowner required to do?

If residential property is vacant during the year, or vacant but an exemption applies, then it is the landowner’s obligation to notify the State Revenue Office by 15th January of this status.  Notification will be made through an online portal, which for January 2025 is expected to be open in December 2024.

If the property is not vacant (for instance if it has been leased all year), then there is no need to make a notification.  Failure to notify could result in penalties.

Please get in touch with our team if you would like to know more about how these tax developments affect you.

Breaking up is hard to do. Beyond the emotional and financial turmoil divorce creates, there are a number of issues that need to be resolved.

What happens when there is a family company?

For couples that have assets tied up in a company, the tax consequences of any settlements paid from the company will need to be assessed. Settlements paid out by a corporate entity can sometimes be treated as taxable dividends and taxed at the relevant spouse’s marginal tax rate.

If you are receiving assets from a corporate entity as part of a property settlement, it’s essential that you understand the tax implications prior to settlement or a sizeable portion of the settlement could go to the ATO.

For business owners, outside of the tax and financial issues, it’s important to not lose focus on what’s important to keep the business running efficiently.

What happens to your superannuation in a divorce?

A spouse’s interest in superannuation is a marital asset and can be split as part of the breakdown agreement. It’s important to be aware however that superannuation cannot be paid directly to a spouse unless the spouse is eligible to receive superannuation (they have met a condition of release) but it can be rolled over into the spouse’s fund until they are eligible to receive it. Laws exist to prevent taxes such as CGT being triggered when superannuation assets are transferred. This is particularly important where your superannuation fund holds property.

A Court order or Superannuation Agreement is required to give effect to the agreed split in the SMSF assets or to execute a rollover eligible for the CGT rollover concession.

If you have an SMSF and both spouses are members, it’s important to get advice to make sure that all of the appropriate administrative issues are taken care of. Where a divorce is not amicable, it’s important to keep in mind that the SMSF trustee is required under law to act in the best interests of the fund and its beneficiaries. Anything less and the fund members may seek compensation for loss or damage.

Can you protect both parties from divorce?

In a divorce, assets are split based on a multitude of factors such as earning capacity, maintenance of children, and the assets held pre-marriage. Many couples don’t go through their marriage with an equal view of how assets and income should be attributed until something goes wrong. If there is a disparity between the income levels of each spouse, there are a lot of benefits to the household in general of evening out how income flows through to the family.  If your partner earns less than you, there is a very real financial benefit to topping up their super as superannuation has preferential tax rates.  The same goes for taxable income. If you can even out income coming into the household, it spreads the tax burden. Good planning can make a difference.

The Government has amended the legislation guiding registered tax practitioners to include compulsory reporting of material uncorrected errors to the Tax Commissioner.

The Government has legislated a series of changes to the Tax Agents Services Act 2009 that place additional requirements on registered tax practitioners and how they interact with clients.

The reforms are in response to the recommendations of a Senate enquiry into the actions of accounting group PwC and the consulting industry in Australia generally. The enquiry was sparked when a now former PwC Partner shared confidential information from Treasury consultations and through his engagement with the Board of Taxation. Despite having signed multiple confidentiality agreements, the Partner intentionally shared this confidential information with PwC partners and others in Australia and overseas, seeking to assist existing and potential new clients avoid some proposed anti-avoidance tax laws. The Senate enquiry estimates that the scandal put at risk $180 million in tax revenue per annum and generated new income of at least $2.5 million for the first tranche of PwC’s services assisting clients to “sidestep the new laws”.

Among other issues, the scandal revealed a series of flaws and deficiencies within the regulation of tax practitioner services, the investigative powers of the Tax Practitioners Board (TPB), and the ability of Government departments to share information.

While many of the resulting legislative reforms impact consulting services to Government, we are now obligated to advise clients of: how to check the currency of our registration as tax practitioners; how to access the complaints process for registered practitioners; and, our obligation to report material uncorrected errors and omissions to the Tax Commissioner.

Tax practitioner registration

The TPB registers and regulates tax practitioners in Australia. Only licensed practitioners can provide tax or BAS services to you. You can check the public register here: https://www.tpb.gov.au/public-register

Firm name’s registration number is 25992551.

Managing complaints

We are committed to providing quality services to you. If we fall short of your expectations and you would like to make a complaint, in the first instance, please contact Manuel Imbardelli.

If your matter is not resolved to your satisfaction, you have the right to make a complaint to the TPB: https://www.tpb.gov.au/complaints.

Correcting errors and omissions

We are prohibited from making a statement to the Tax Commissioner or other government agency that we know, or ought to know, is false, incorrect or misleading, or incorrect or misleading by omission.

If we become aware that a statement made to the Tax Commissioner is materially incorrect, we are obligated to either:

Correct it, if we made the misstatement; or

If the misstatement was made by you, advise you that it needs to be corrected.

If the misstatement is not corrected, we are obligated to report this to the Tax Commissioner.

Concerned?

If you have any concerns about the changes, please contact Manuel Imbardelli on 03 8400 6500.

21 September

Lodge and pay August 2024 monthly business activity statement.

30 September

Lodge PAYG withholding payment summary annual report if prepared by a BAS agent or tax agent excluding large withholders whose annual withholding is greater than $1 million.

Lodge Annual TFN withholding report 2024 if a trustee of a closely held trust has been required to withhold amounts from payments to beneficiaries.