Land tax surcharge exemption for absentee corporations
An absentee owner is required to pay an absentee owner surcharge on all taxable Victorian land. The surcharge is currently 1.5 percent (in addition to any land tax payable at general and trust surcharge rates). In this article, partner Marcus Cutchey and senior associate Monica Hii explain how an absentee corporation may apply to the State Revenue Office (SRO) for a controlling interest exemption which would make the corporation exempt from the absentee owner surcharge.
Who is an absentee owner?
An 'absentee owner' means:
- an individual who is not an Australian citizen or permanent resident and who generally does not reside in Australia and is absent from Australia for a requisite amount of time (absentee person)
- a corporation where an absentee person has a controlling interest (absentee corporation), and
- a discretionary trust, unit trust or fixed trust, where at least one beneficiary is an absentee person.
What is a controlling interest exemption?
An absentee corporation may apply to the SRO for a controlling interest exemption. The exemption means the corporation that owns the land is not considered an absentee corporation and is therefore exempt from the absentee owner surcharge.
Criteria for the controlling interest exemption
The absentee owner surcharge is not intended to capture corporations whose commercial activities make a strong and positive contribution to the Victorian economy and community by engaging local labour and utilising local materials and services. However, all other taxes usually imposed on the corporation remain in place.
- When deciding whether to grant the exemption, the Commissioner of State Revenue must consider the following Guidelines published by the Treasurer:
- The absentee person's degree of day-to-day control or input or influence over the decisions of the absentee corporation.
- Any other relevant circumstances, such as impact on the economy, competition, impact on the community, character of the absentee corporation, location of the corporation's central management, and the ability for the management to make independent decisions.
Applying for the controlling interest exemption
The Commissioner's power to grant the exemption is discretionary so applications are examined on a case-by-case basis. For an application to have a reasonable chance of success, the corporation must satisfy the Commissioner that it is making a significant contribution to the Victorian economy and imposing the surcharge will place the corporation at a disadvantage with its competitors. For example, an absentee corporation which owns land earmarked for future residential development will need to offset the land tax surcharge by increasing its sale prices, which will have a detrimental impact on housing affordability.
Information provided should include the company structure; background about the corporation's Victorian business operations; details of its directors, management and administration arrangements; and financial statements showing profits earned and costs incurred by the corporation's business operations.
An exemption may be granted subject to terms and conditions, such as the exemption only being available for a limited period.
Other than Victoria, Queensland and New South Wales are the only states in Australia which impose the absentee land tax surcharge (albeit with different criteria as to what constitutes an absentee owner). However, the exemption is only available in Victoria.
Please contact us for more information about the exemption for absentee corporations and how it applies to your business operations.
McMahon Clarke and MSCI invite you to our Australia Property Investment Forums in Melbourne and Brisbane. Click here for more details.
The latest edition of Fundamental is available now. Download your copy.
Download our guide to RG 97: Updating your disclosure documents – everything you need to know here.