In recent years, the Victorian Government has introduced vacant residential land tax and absentee owner surcharge taxes that may impact foreign investors in Victorian real estate.
Unfortunately and unhelpfully, these changes require voluntary disclosures rather than being automatically assessed by the Government. Therefore these can often catch out owners that are unaware of the requirements to voluntary disclose.
Property investors into Victorian property need to make voluntary notifications (if they have not already done so) by on 15 January 2020, for the following Victorian taxes:
- Vacant Residential Land Tax
- Absentee Owner Surcharge
Vacant Residential Land Tax (VRLT)
This is a tax on residential properties in inner and middle Melbourne which are unoccupied for more than six (non-continuous) months in any calendar year. The rate of VRLT is 1% of the capital improved value of the property. There are some exemptions such as holiday homes and city work units.
If the property is not leased out and is unoccupied for at least 6 months between 1 January to 31 December, the VRLT will apply and voluntary notification to the SRO of the liability is required by 15 January the following year.
Absentee Owner Surcharge (AOS)
This is currently levied at the rate of 1.5% of the taxable value of the land and applies if an absentee owner (a natural person absentee, absentee corporation or absentee trust) owns land as at 31 December of the preceding year. Broadly speaking, the absentee owner surcharge impacts real estate majority owned or controlled by foreign persons.
The AOS rate will increase from 1.5% to 2% from 1 January 2020. There is however a carve out if the land holdings are below $250,000 in value (in aggregate for all property holdings in Victoria).
Again, the AOS requires a voluntary disclosure to the SRO and therefore being aware of this is critical to mitigate the risk of penalties applying if reviewed by the SRO.
Exemption from AOS
It is possible to apply for an exemption from AOS.
Although relief is discretionary, there is value to try and seek to obtain relief especially where property development activities are being undertaken or proposed to be undertaken.
We have assisted multiple clients obtain relief including a case where there was 90% foreign ownership.
Why is notification important?
The failure to notify is a notification default and penalty tax can apply ranging from 20% to 90%.
If a notification was made to the SRO for previous land tax years, a new notification is only required if your circumstances have changed.
Illustration: Foreign property investors owning vacant residential land as an absentee owner
The following table shows the different outcomes to foreign investors own residential land in Victoria. The costs in the table are for illustration purposes only.