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Updated land tax exemption requirements for charitable institutions

The State Revenue Office Victoria has recently published draft revenue ruling LTA-009 - Land Tax Charity Exemption to provide the interpretation of the Commissioner of State Revenue on recent amendments to the land tax exemptions for charitable institutions. The amendments and the draft revenue ruling apply from the 2022 land tax year.

Daniel Hui, Maddocks Lawyers

The amendments to the land tax exemptions for charitable institutions

The Windfall Gains Tax and State Taxation and Other Acts Further Amendment Bill 2021 recently amended the Land Tax Act 2005 (Vic) (Land Tax Act) to tighten the land tax exemptions for charitable institutions with effect from 1 December 2022 (i.e. effective for the 2022 land tax year).

  • amending section 74(1)(a) to insert the words "and occupied" to read as follows: "it is used and occupied by a charitable institution exclusively for charitable purposes";
  • amending section 74(1)(b)(iii) to read as follows: "declared by its owner to be held for future use and occupation by a charitable institution exclusively for charitable purposes";
  • repealing section 71 and replacing it with section 74(1)(c) that provides that land is exempt where it is:
    1. "owned by a charitable institution
    2. leased for outdoor sporting, outdoor recreational, outdoor cultural or similar outdoor activities; and
    3. available for use for one or more of those activities by members of the public."
  • and consequential amendments to effect the above amendments.

The background and rationale for the amendments

Section 71 was originally introduced to provide an exemption for land that was vested in a charitable organisation but used for a non-charitable purpose (such as an outdoor sporting activity) where the proceeds of the lease were being applied to charitable purposes. However, this ownership requirement was not reflected in the legislation. As a result, the section 71 exemption was available for taxpayers that were not charitable organisations but applied the proceeds from the leasing the property exclusively for charitable purposes. To restore the original policy intent of this exemption, section 71 was repealed and replaced by new section 74(1)(c).

The amendments to the remainder of section 74 were in response to the decision of the Supreme Court of Victoria in The University of Melbourne v Commissioner of State Revenue [2021] VSC 156. The Court held that the University of Melbourne (a charitable institution) was exempt from land tax in respect of two parcels of land that it owned and leased to a third-party student accommodation operator for use as student accommodation to students of the University of Melbourne, and that the term "use" did not require occupation of property.

The Ruling

On 15 February 2022, the Commissioner of State Revenue (Commissioner) published draft revenue ruling LTA-009 - Land Tax Charity Exemption (Ruling) to provide his interpretation of the meaning on the new section 74 exemptions for charitable institutions and to replace the existing guidance contained in LTA-004 and LTA-005 (though these continue to apply for the 2021 and prior land tax years).

The Ruling outlines the Commissioner's view on how the exemptions in section 74 are intended to apply and also the evidentiary matters that applicants should submit when applying for the exemption. The key points of the Ruling are as follows:

  • The question of whether or not an organisation is a charity is determined in accordance with common law principles. Generally, an organisation is a charity if it is established for the relief of poverty, the advancement of education, the advancement of religion, or other purpose beneficial to the community. The organisation must also:
    • meet the public benefit requirement (that the public benefit must be for the community as a whole or an appreciable section of it); and
    • be not-for-profit (any profit or surplus income must be used solely to further the organisation's objectives and must not be distributed to its members). Generally, this requires that the organisation's wind-up clause to prohibit distribution of any surplus assets to its members or directs distribution of any surplus assets to another charity whose wind up clause also prohibits distribution of any surplus assets to the members of that charity.
  • For the meaning of "used and occupied", occupation is a factual inquiry to be determined based on the taxpayer's specific circumstances. The Commissioner's view is that occupation requires actual physical activity with a degree of permanence or exclusive possession to satisfy the meaning of "used and occupied".
  • The use and occupation of the land by the charitable institution must be exclusively for charitable purposes. To that end, a business or commercial activity carried out on the land by a charity to raise funds is not considered as a use of the land exclusively for charitable purpose even though the funds raised are used for its charitable purposes (consistent with the decision in Wesley Mission Melbourne Ltd v Commissioner of State Revenue [2004] VCAT 419 and the Commissioner's previous guidance in LTA-004).
  • For charities who provide accommodation as part of their activities, the Commissioner will look to a range of circumstances and factors in determining whether the accommodation arrangements are consistent with the charity using and occupying the land. This includes whether nominal or subsidised rent is provided by the charity, whether the charity provides other care and support services on the land, whether the charity provides and maintains common areas and amenities (such as on-site security, water, electricity, etc.), whether the charity has the authority to exclude or permit members of the public to access the premises and whether the charity otherwise maintains control / possession of the land.
  • For opportunity shops, a number of specific additional conditions to be met (in addition to the "use and occupied" requirement). These are that the activities conducted in the opportunity shop must specifically meet the aims of the charity (i.e. the shop must, through its operations, directly provide relief of poverty for its shoppers, as distinct from raising funds), goods must be sold at nominal prices, good must be predominately donated and second hand, and workers must be predominantly volunteers purposes (consistent with the Commissioner's previous guidance in LTA-005).
  • To qualify for the vacant land exemption, 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, especially where there is considerable uncertainty around the timing and likelihood of the purported future charitable use and occupation of the land.

The Ruling is currently in draft and there is currently a consultation process for comments and submissions prior to the Ruling being finalised. The due date for submissions on the Ruling is 5pm AEDT 15 March 2022.

Key takeaways

In light of the recent amendments to the exemption requirements and the Ruling, we recommend that charitable institutions seeking to claim a land tax exemption for the 2022 land tax year review their existing arrangements to confirm whether their use (and occupation) of their landholdings is consistent with the updated requirements of the exemption

More Cleardocs information on related topics

You can read earlier ClearLaw articles on a range of matters.

Last revised on : 06-10-2022

Lawyer in Profile

Daniel Hui
Daniel Hui
Senior Associate
+61 3 9258 3563

Qualifications: BCom, LLB (Hons), Monash University

Daniel is a member of Maddocks Tax and Structuring team. He has expertise advising on both direct and indirect taxes. He has represented private and publicly-listed companies, high net worth family groups and not-for-profit organisations in a broad range of tax and duty matters.

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