Recent Land Tax Changes in Victoria

Principal Place of Residence exemption

The Victorian Government has recently enacted changes to the land tax rules in respect of contiguous land in metropolitan Melbourne. From 1 January 2020, the principal place of residence (PPR) exemption will no longer apply to contiguous land unless the PPR land and the contiguous land are in regional Victoria. 

What is contiguous land?

Land is contiguous to the PPR if it is adjoining the PPR land or is only separated by a road, railway or something similar. Contiguous land must not contain a separate residence, and must:
  • enhance the PPR Land; and
  • be used solely for the private benefit and enjoyment of the owner.
A separate residence is a building affixed to the land which is capable of separate occupation, therefore if the contiguous land contains a house or granny flat, the PPR exemption cannot extend to the contiguous land. Generally, a building without all the amenities of an ordinary home, such as kitchen and bathroom facilities, is not considered a separate residence. 

Examples of uses of contiguous land that may qualify for the PPR exemption include land used for any of the following:
  • tennis court;
  • pool; 
  • garden; 
  • garage/car park; or
  • storage space. 

Implications for contiguous land in metropolitan Melbourne

From 1 January 2020, land contiguous to PPR land in metropolitan Melbourne will not be entitled to the PPR exemption. However, the exemption will still apply where the PPR is an apartment or unit with a separately titled car park and/or storage space.

For landowners holding contiguous land in metropolitan Melbourne it is possible to consolidate the PPR land and the contiguous land into a single title in order to maintain the PPR exemption. The consolidation needs to be registered by the Registrar of Titles by 31 December 2019 for the PPR exemption to apply for the 2020 land tax year.

The capital gains tax implications should also be considered prior to consolidation.

Implications for contiguous land in regional Victoria

The exemption will continue to apply to land contiguous to PPR in regional Victoria. The State Revenue Office (SRO) has provided a list of the regional councils and alpine resorts which are considered to be regional. Please find a link to the list contained here.

Absentee Owner Surcharge

Land owned by an absentee owner is subject to a surcharge in addition to the general rate of land tax. The surcharge rate will increase from 1.5% to 2% from 1 January 2020. 

Absentee owners can be individuals, companies or trusts. Absentee individuals include individuals who are not Australian citizens or permanent residents, do not ordinarily reside in Australia and were absent from Australia either on 31 December of the year prior to the tax year, or for more than six months of the year prior to the tax year. Companies and trusts with shareholders or beneficiaries that are absentee individuals may also be subject to the surcharge.

Next steps

We recommend any landholders considering a consolidation of land in order to maintain the PPR exemption, or absentee owners who have not previous advised their absentee status to the SRO contact their Moore Stephens’ advisor.