Victorian absentee land tax surcharge - KPMG Australia
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Victoria takes steps to trust rather than tax absentee owners

Victorian absentee land tax surcharge

Michelle Bennett and Dorian Beaver discuss a proposed change to how Victoria's absentee land tax surcharge applies to trusts


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A Bill has been introduced in Victoria which proposes to amend how the Victorian absentee land tax surcharge applies to trusts.

A quick refresher on the surcharge

Victoria levies an “absentee owner surcharge” on land tax payable by foreign individuals, certain foreign owned trusts and certain foreign owned companies. At 1.5 percent of the unimproved value of the land it doesn’t sound like much, but on top of the base rate of up to 2.25 percent the surcharge is almost a 67 percent increase.

Unlike the land tax surcharges in other states, the Victorian surcharge applies to all land – not just residential land.

Extension of the exemption for trusts

There is currently a discretionary exemption from the surcharge for foreign owned Australian companies that conduct a commercial operation in Australia, which makes a strong and positive contribution to the Victorian economy and community. This has now been extended to trusts, although passive rent collectors are likely to fail the commercial operation and economic contribution requirement.

This may assist foreign owned trusts who conduct development activities through a trust, rather than a standard structure, to ensure foreign tax credits for Australian income tax are available in the ultimate investor’s jurisdiction.

Tracing through a chain of trusts

Tracing through a chain of trusts is important in two respects:

1. To determine whether the land owning trust is an absentee – This requires tracing up through a chain of trusts to determine if the ultimate beneficiaries are foreign individuals or corporations. There was originally a definitional flaw which arguably resulted in land owned by a chain of trusts being incapable of being subject to the surcharge, but that has been remedied by a previous amendment.

2. To determine how much absentee owner surcharge is payable where only some of the beneficiaries are absentees – Where a trustee is the owner of land the surcharge is applied to only a portion of the land, determined by variable “C” in the calculation formula which is essentially the beneficial interest in the trust held by an absentee. In a chain of trusts there were three possible interpretations for C, being:

  • it was always 100 percent
  • it was always 0 percent or
  • it was based on the proportion of ultimate ownership of an absentee – a practical interpretation but one that required words to be read in to the legislation.

The amendments should result in the third interpretation and diagrams in a new schedule make the intended effect abundantly clear. For those following along at home, the schedule is a good place to start (and maybe finish – it’s much clearer than the words).

The change is great news for both local investors and ‘surcharge exempt’ foreign investors who co-invest through a trust which includes ‘taxable absentees’, as now the surcharge should only be charged on the taxable absentee’s proportion. Previously, even a nominal holding by an absentee risked all of the land being subject to the land tax surcharge. It’s probably great news for many tenants as well, where the surcharge was being passed through. 


Similar to a previous article about the NSW foreign developer exemptions, the foreign surcharges are still being tinkered with. Foreign investors and developers will be hoping the tinkering continues with the recent theme of more generous exemptions rather than the previous theme of rate increases.

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