Introduction of Bill includes a further exemption

State Taxation and Treasury Legislation Amendment Bill 2022 (part 8) provides an exemption from the Windfall Gains Tax for land owned by a university in certain circumstances. 

Background

The windfall gains tax (WGT) was announced in the 2021-22 Victorian Budget and the legislation received royal assent on 30 November 2021.  See our article on the Windfall Gains Tax and subsequent article on the charity land tax exemption for further detail.

The WGT will apply from 1 July 2023 and imposes a tax on land that receives an uplift in value as a result of rezoning at the following rates:

The Government wrote to universities in October 2021 to advise that charities would be exempt from the WGT where they owned and used the land for 15 years after the rezoning.  This exemption was included in the legislation that was passed in November 2021. 

Proposed WGT exemption for universities

The current bill has now proposed to provide an even broader exemption for universities than the 15 year charity exemption.  This broadening of the exemption is positive news, but universities should still understand that the exemption remains subject to the Commissioner’s approval and conditions.

Conditions for exemption

The proposed WGT exemption for universities will apply where it meets all of the following:

• the land is owned by a university
• the university is a charity, and
• the Commissioner is satisfied that any land revenue from the land will be used to further the university’s charitable purpose.

To access the exemption the university must provide to the Commissioner with a declaration as to:

• the nature of any land revenue form the land
• the intended application of the land revenue, and
• how the application of the land revenue will further the university’s charitable purpose.

Land revenue means any revenue arising from the sale or use of the land, including any of the following:

• sale proceeds from the sale of the land
• rental income from leasing the land
• licence fees from licensing the land.

How SW can assist

The SW Education team works closely with a large number of Victoria’s universities and has extensive experience in advising and assisting them to navigate financial complexities. Should your university be in the process of rezoning Victorian land and require any further advice on this issue please contact either Stephen O’Flynn or Steve Allan.

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The recently released Windfall Gains Tax and State Taxation and Other Acts Further Amendment Bill 2021 has introduced Victoria’s new Windfall Gains Tax and included changes to the charity exemption for land tax.

This should be considered closely by Universities that hold land in Victoria as it will impose:

• land tax on certain land owned by Universities that has not historically been subject to land tax; and
• a significant new value capture tax where University land is rezoned (particularly where it is rezoned from public land to residential land).

Land Tax

The land tax exemption for charities has been narrowed so that it is now only available where land is:

• used and occupied by a charity exclusively for charitable purposes; or
• is vacant and has been declared by the University to be held for future use and occupation by a charitable institution exclusively for charitable purposes.

It is believed that this change was introduced to reverse the decision in University of Melbourne v Commissioner of State Revenue (Vic) which allowed the charity land tax exemption to apply to student accommodation located on the University of Melbourne Campus that is operated by a third-party student accommodation provider.

However, the amendment is likely to have a broader impact.

Universities will need to determine if land and buildings that they own but rent to or is used by third parties is ‘occupied’ by the University.

This would include not just student accommodation facilities rented to students, but any other buildings or facilities that are leased to businesses to provide services to students on campus such as banks, travel agents, cafes, etc.

Windfall Gains Tax

For a summary of the new Victorian Windfall Gains Tax please refer to our Windfall gains tax alert.

Relevantly for universities where land is rezoned it will be subject to Windfall Gains Tax unless the 15-year charity waiver applies.

The waiver is available where the land is continued to be held for 15 years after rezoning by the charity.

This waiver can continue to be available where the rezoned land is transferred to another charity and the new charity elects to receive the land with the deferred windfall gains tax liability and any accrued interest and commits to the land being used by a charity exclusively for charitable purposes.

How can SW assist?

If you believe that you will be affected by the WGT or have any questions on how to navigate these changes, please contact us – either your usual SW contact or any of our key contacts.

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