Draft Land Tax Ruling - Land Tax Exemption for Charities

On 15 February 2022, the Victorian State Revenue Office (SRO) published ruling LTA-009 (Draft Ruling) that replaced the previous rulings of LTA-004 and LTA-005.

The consultation process closed for comments and submissions on 15 March 2022. We will provide updates when the SRO releases their final ruling in due course.

Background

The Draft Ruling was made in response to recent amendments to the Land Tax Act 2005 (Vic) (Act) that relate to a charitable institution being able to obtain an exemption from land tax.

The Draft Ruling proposes that in order for the exemption to be granted, the Commissioner must be satisfied that the relevant land that an exemption is sought was “used and occupied” exclusively for charitable purposes. 

Prior to the recent amendments to the Act, the Act required that the land was used (and not also occupied) by a charitable institution exclusively for charitable purposes.

From the 2022 tax year onwards, for land to be exempt from land tax for charities in Victoria, the Commissioner must determine that:

1. the land is “used and occupied by the charitable institution exclusively for charitable purposes”; or

2. 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; or

3. the land is “owned” by a charitable institution, leased for outdoor recreational, outdoor cultural or similar outdoor activities and available for “use” by members of public in respect of one or more of those activities.

The Draft Ruling outlines the Commissioner’s position on how the exemption in section 74 of the Act is intended to apply, as well as setting out the evidentiary matters that applicants should submit when applying for the exemption. The evidentiary matters are subject to change in the final ruling.

Key findings in the Draft Ruling

Key findings in the Draft Ruling include, amongst other things:

1. Regarding the interpretation of “used and occupied”, the Commissioner’s view is that occupation requires actual physical activity with a degree exclusive possession and control to satisfy the meaning of “used and occupied”.

2. For the land to qualify for the exemption, the use and occupation of the land must be exclusively for charitable purposes. Generally, only purposes relating to the achievement of the charitable purposes are considered charitable and the Commissioner cautions charitable organisations undertaking commercial activities to fund their charitable objects.

3. For charities who provide accommodation as part of their activities, the Commissioner will look to a range of factors in determining whether the arrangements are consistent with the charity using and occupying the land, including:

   • whether subsidised rent is provided by the charity;

   • whether the charity provides amenities on the land; and

   • whether the charity has the authority to exclude or permit members of the public to access the premises.

4. Regarding vacant land, the Commissioner must generally be satisfied that the vacant land will be used and occupied by a charity within 2 years. Simply declaring that a vacant property is held for future charitable use and occupation is not sufficient.

The evidentiary requirements that the owner must provide in their written application include:

1. Full details of the location and ownership of the land;

2. Copy of any relevant company incorporation documents, company constitution and/or trust deed;

3. Details of the organisations aims and objectives;

4. Financial statements of the past 3 financial years;

5. Details of any previous charity exemptions granted;

6. Other supporting information that the organisation is charitable (including evidence of winding-up and distribution clauses to that effect);

7. Details of all activities conducted on the land with promotional materials; and

8. Details relating to future use and occupation of the vacant land.

Takeaway

Charitable organisations seeking to claim the exemption from land tax should consider whether the organisation is using and occupying the land exclusively for its charitable purpose, and whether appropriate documentation is in place to demonstrate to the Commissioner that the use and occupation of the land satisfies the exemption.

Charities holding vacant land should review their holdings and consider what use the land will be put, including the timelines for doing so.

Finally, we note Draft Ruling is proposed to apply from the 2022 land tax year, whereas the previous rulings – LTA-004 and LTA-005 will continue to apply for the 2021 and prior land tax years.

If you require advice on the implications of the Draft Ruling, or whether the exemption is available to you, please contact:

Paul Gray
Principal
T: 03 5225 5231 | M: 0414 195 886
E: pgray@ha.legal

Rod Payne
Principal
T: 03 5226 8541 | M: 0407 268 541
E: rpayne@ha.legal

Hugo Le Clerc
Lawyer
T: 03 5225 5213
E: hleclerc@ha.legal

Ryan Popovski
Lawyer
T: 03 5226 8572
E: rpopovski@ha.legal