Similar to the Vacant Residential Land Tax (discussed here), the Absentee (Foreigner) Land Tax Surcharge is another state tax which may be payable on top of the total taxable value of the land held by taxpayers. This article will discuss what the Absentee (Foreigner) Land Tax Surcharge is, who it applies to and ways in which taxpayers may be able to claim an exemption for it.
What is the Absentee (Foreigner) Land Tax Surcharge?
If you are a foreign owner of property in Victoria, you will likely have to pay a surcharge, on top of land tax, known as the Absentee land tax surcharge. While in other states, the surcharge may apply only to residential land, the surcharge in Victoria applies to all types of land, including residential, commercial, primary production and etc.
From 2024, a surcharge of 4% applies to all Victorian land owned by an absentee owner, up from 2% in the 2020 to 2023 land tax years.
There are currently three categories of absentee owners, these include the following:
- An absentee individual;
- An absentee corporation; and
- A trustee of an absentee trust.
An absentee individual is an individual who constitutes all of the following:
- Is not an Australian citizen or permanent resident;
- Does not ordinarily reside in Australia;
- Was either, absent in Australia:
- On 31 December of the year prior to the tax year, or
- For more than 6 months in total in the calendar year prior to the tax year.
As such, the absentee surcharge does not apply to Australian citizens or permanent residents who reside overseas. It is clear from the Land Tax Act 2005 that the surcharge was not meant to apply to Australian citizens. However, our practice has often seen cases where Australian citizens who reside overseas being imposed the surcharge despite the clear wording of the legislation. In these circumstances, the lodgement of an objection against this has always been successful.
An absentee corporation on the other hand means:
- A corporation that is incorporated outside Australia; or
- A corporation in which an absentee person has a controlling interest.
Lastly, an absentee trust is defined as a trust with at least one absentee beneficiary has a beneficial interest in land subject to a fixed trust, or is a unitholder in a unit trust scheme or is a specified beneficiary of a discretionary trust.
Exemption
When the surcharge was introduced, the legislature also introduced an interesting exemption through sections 3B and 3BB of the Land Tax Act 2005. Put simply, applicants may apply to the Treasurer to exercise their discretion to exempt the applicant form the Absentee Land Tax Surcharge.
Section 3B provides as follows (our emphasis):
Further, Sections 3BB of the Act outlines that in respect to subsection 2(d) of above, the Treasurer must published guidelines in relation to the exemption under 3B.
In exercising the power of exemption under 3B, the Treasurer will give close consideration to the fact that the applicant seeking exemption is Australian based, makes a significant contribution to the Victorian economy and community, and exhibits good corporate behaviour.
In regard to having a significant contribution to the Victorian economy, the Treasurer will consider the extent of commercial activities of the absentee corporation in Australia, the number of local workers engaged in Victoria and the amount of expended resources being used for the said commercial activities in Victoria. Additionally, good corporate behaviour will be exhibited where any FIRB requirements in relation to landholdings are met, any Australian laws have been complied with and Victorian taxation laws have been abided by.
The following factors will also be considered in determining whether an exemption ought to be granted:
In considering the factors highlighted in section 3B(2), Kamirice offers an interesting perspective on how the Tribunal will exercise this discretionary power. At [37] the Tribunal highlighted that “ it is clear the discretion given by section 3B of the Act can be exercised by having regard to any one or more of the matters set out in section 3B(2), it is appropriate, in this particular case to have regard to each of the specified matters that are raised in the subsection and consider them in light of the relevant guidelines supplied by the Treasurer”.
Further, primacy is afforded to the legislated factors, namely the nature and degree of ownership and control the absentee person has in the corporation, the practical influence the absentee person exerts to determine or influence the corporation’s financial and operating policies and any practice or behaviour of the absentee person has which affects the corporation’s financial or operating policies. As noted in Kamirice, the Guidelines will primarily be used as consideration of general principles of the relevant circumstances with regard to the statutory considerations set out in s3B(2). In essence, the Guidelines are in fact a statement of Government policy and as such, the Tribunal should have regard and apply the Guidelines in exercise of the discretion conferred by section 3B(2) unless there are reasons to warrant departure from those policy guidelines.
Despite this, the weight given to each of the factors enumerated above will depend on the circumstances of the particular case. In some cases such as Kamirice, it may be more important to look at matters such as control and the benefit to the Victorian economy than matters such as competitiveness.
Should you wish to discuss the above, please contact Tony Pointon and Andrew Pointon of our Taxation Team.
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