Clarification for the Holiday Home Exemption

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Earlier this year we published an article on recent amendments to Vacant Residential Land Tax (VRLT) in Victoria.

As part of our discussion, we noted that although there was an exemption for holiday homes, properties owned by a company or trust originally would not qualify.

The Victorian Government has now passed further amendments to the Land Tax Act to extend that exemption to holiday homes held by trusts or companies. 

As always, though, the devil is in the details.

What is Vacant Residential Land Tax?

VRLT applies to residential land in Victoria that has been vacant for more than six months in a calendar year. The rate of tax is between 1% and 3% of the capital improved value of the land (depending on how long the land has been vacant). 

The holiday home exemption applies if the owner uses the property as a holiday home for at least 4 weeks each year.

Land held by Companies & Trusts

Following amendments to the Land Tax Act passed in early June, holiday homes owned by companies or trusts will now qualify for the exemption subject to certain conditions. 

In the case of family trusts, the requirements are as follows:

  • the trust must have owned the property on 28 November 2023, or acquired it at a later date under a contract of sale that was entered into on or before 28 November 2023;
  • a person who is a ‘specified beneficiary’ in the relevant trust deed (that is to say, a person who is specifically named in the deed as a beneficiary) owns another property in Australia as their principal place of residence;
  • the property is used as a holiday home by the specified beneficiary and their relatives; 
  • any changes to the ‘specified beneficiaries’ in the trust are limited to relatives of existing specified beneficiaries; and
  • the Commissioner is satisfied that the land is used as a holiday home. 

Potential issues

From the above, several issues arise.

Firstly, for trusts that acquire a holiday home after 28 November 2023, the exemption will not be available except in limited circumstances (namely, that the property must be acquired under a contract dated 28 November or earlier).

Secondly, sometimes trust deeds may not include specified beneficiaries, or the specified beneficiary may have since passed away. Given the trust must have a specified beneficiary who uses another Australian property as their principal place of residence, some trusts deeds may not meet this standard. Amending the deed may be a solution, subject to whether the SRO deems this be a resettlement (which would create duty implications). 

Thirdly, any changes to the specified beneficiaries of the trust may cause the exemption to be lost (particularly where those people may not be relatives of the original specified beneficiary). 

It remains to be seen how these issues will be resolved.

In the meantime, owners of holiday homes should ensure that they have evidence of 4 weeks’ qualifying use by the end of the year. Where the property is owned by a trust, the deed should be reviewed to see who (if anyone) qualifies as a specified beneficiary. 

Aintree Group Legal will be happy to discuss all your trust and property needs. Contact us today.