Buried in the Victorian 2019/20 Budget Papers was a change to the land tax treatment of a common scenario that will prove to be an unwelcome surprise for many land owners when the Victorian 2020 Land Tax assessments roll out.
Where a natural person owns land that is used as the person’s principal place of residence (‘PPR’), it is exempt from land tax under s. 54(i) of the Land Tax Act 2005 (LTA).
Until now, s. 54(3) extended the exemption to other land owned by the person where the other land:
- is contiguous to the PPR land (or is separated by a road or railway or similar area across which movement was reasonably possible);
- enhances the PPR land;
- is used solely for the private benefit and enjoyment of the person who uses and occupies the PPR land; and
- does not contain a separate residence.
In practical terms, this means that where a person’s residence (the building structure) and gardens, garage or other amenities such as tennis courts or swimming pools were located on adjacent titles the land tax exemption would routinely apply to all pieces of land.
This scenario may have arisen from acquisition of adjacent titles over the years.
However, a more recent trend is for a subdivision of a single title with sale/development opportunities in mind. The ‘aggregated’ land (despite comprising multiple adjacent titles) may still serve as a person’s PPR land. For example, with a view to taking advantage of future sale/development opportunities, a single lot might be subdivided into 3 lots comprising and separate certificates of title issued for each lot: title A – the front garden; title B – the residence; and title C – the rear garden and garage.
The Budget change (now enacted) has imposed an additional condition in section 54(3). From the 2020 Land Tax year, the section 54(3) exemption will now only apply to ‘contiguous’ land where both it and the PPR land are wholly in regional Victoria. As the term ‘regional Victoria’ suggests, the change will have a major impact on landowners closer to the CBD. The scope of what is in regional Victoria is detailed on the Victorian Revenue website.
The outcome is that many landowners should now expect to receive land tax assessments in 2020 for separately titled land, notwithstanding that land is used and enjoyed as part of their principal place of residence.
Consideration of anti-avoidance provisions (e.g. ss. 101 and 102 LTA) aside, a landowner who may be willing to consolidate titles through lodgement of a plan of consolidation so as not to be subject to the measure must have the plan registered with the Register of Titles by 31 December 2019 for this to be effective for the 2020 Land Tax year.
In many instances, as the SRO will not know on which title the building structure is located, assessments may be received for all titles. As a result, landowners will need to take action to ensure at least the title(s) containing the residence enjoy exemption.
Landowners who might be affected by the change should immediately consider their precise circumstances in the context of the SRO’s approach to applying the LTA and the SRO’s view of the nuances of the practical reach of the change.
Further (presently limited) explanation of the change is available on the Victorian Revenue website.
This article provides a general summary of the subject covered and cannot be relied upon in relation to any specific instance. Webb Martin Consulting Pty Ltd and any person connected with its production disclaim any liability in connection with any use. It is not intended to be, nor should it be relied upon as, a substitute for professional advice.