The ruling, titled Income tax: rental property income and deductions for individuals who are not in business (‘the ruling’), along with two practical guidance guides, replaces the longstanding IT 2167. It targets non-business rental properties, especially holiday homes, short-term rentals, and mixed-use properties.  

Key points from the draft: 

We provide further commentary on this matter below. 

Assessable rental income 

Any amounts derived from rent, lease premiums, licence fees or other similar charges are assessable income for a rental property. This includes amounts received through an agent, a sharing or online platform such as Airbnb, or directly from a tenant. 

Any of the above amounts received will form part of the property owner’s assessable income, even if the income is not received at commercial arm’s length rates.  

Certain amounts received under family arrangements, such as the payment of board to a parent, may not be treated as assessable income. 

Deductions and apportionment of expenses 

Property owners can claim deductions for losses or outgoings to the extent that they are incurred in gaining or producing assessable income from the property, provided they are not capital, of a private or domestic nature, or prevented from being deductible under another legislation. 

As such, property owners may only claim deductions to the effect that it relates to their assessable rental income. For mixed-use properties, where the property owner is also using it for personal or family purposes, then deductions must be appropriately apportioned to account for this private use. 

PCG 2025/D6 provides guidance and factors when apportioning costs, including: 

Certain costs such as advertising, property agent fees, and cleaning fees are fully deductible and do not require apportionment. 

Holiday homes – increased stringency 

The most notable change in the draft ruling is the ATO’s increased stringency on holiday homes.  

A ‘holiday home’ refers to a property that is used, or held for use, for a person’s holidays or recreation, or for the holidays or recreation of their family members and friends, either for no rent or at a reduced rate. 

Where a person’s rental property is a holiday home, the ATO may regard the property as a ‘leisure facility’ for the purposes of s26-50 of the ITAA 1997 and deny certain deductions such as land tax or council rates. This is to prevent taxpayers from obtaining a tax subsidy for expenditure on their own recreation.  

However, the ruling provides an exception to this where the holiday home is used, or held for use, mainly to produce assessable income in the form of rents, lease premiums, licence fees or similar charges.  

PCG 2025/D7 provides a risk framework and factors to consider when determining if the property is used, or held for use, mainly to produce assessable income, including: 

Transitional relief 

The ATO has allowed a transitional period, during which they will not allocate compliance resources to review whether properties fall under s26-50 before 1 July 2026, provided the relevant expenses arise from arrangements entered into before 12 November 2025.

How SW can help 

Property owners should be aware that the ATO will have increased scrutiny on rental deductions.  

SW can help assess your property’s position under the draft ruling, review your usage patterns, ensure deductions are correctly apportioned, and provide practical guidance on what evidence and apportionment methods you’ll need going forward.  

Our team can provide tailored guidance and help you understand how these changes may affect your properties and tax obligations, ensuring you stay well-prepared and informed. 

Contributor

Dylan Kelly

The post Rental properties and holiday homes: ATO’s new draft ruling appeared first on SW Accountants & Advisors.

Key legislative changes

Commercial and Industrial Property Tax Reform Act 2024

The Bill makes targeted amendments to the Commercial and Industrial Property Tax Reform Act 2024 (CIPT Reform Act) to address technical anomalies and ensure the scheme operates as intended.

The key change is a tightening of the criteria for when a transaction causes land to enter the commercial and industrial property tax scheme. Under the new rules, a transaction will fall within the CIPT regime only if duty is payable on at least 50% of the land’s unencumbered value. This closes loopholes where nominal or minimal duty could previously result in land entering the scheme, such as in certain partitions or concessional transfers.

The Bill also clarifies the calculation of ‘entry interests’ and ‘qualifying transactions’, ensuring that only the portion of the interest on which duty was actually paid is counted for tax reform purposes. Transitional provisions ensure these amendments apply retrospectively from 1 July 2024, aligning the law with its intended operation from the commencement of the CIPT scheme.

Congestion Levy Act 2005

The State Taxation Further Amendment Bill 2025 introduces several important changes to the Congestion Levy Act.

Most notably, parking spaces used exclusively for residential purposes—including those in hotels, serviced apartments, and clubs providing accommodation, are now excluded from the congestion levy. This simplifies compliance for residential property owners and removes the need for a separate exemption provision.

The Bill also increases the congestion levy rates for 2026, setting them at $3,030 for category 1 levy areas and $2,150 for category 2 levy areas, with annual CPI adjustments from 2027 onwards. Additionally, the category 2 levy area is expanded, and the map of levy areas will now be published online by the Commissioner of State Revenue, improving transparency and accessibility for affected businesses.

The new rules introduce exemptions and concessions:

• Parking spaces at government schools and boarding premises are exempt from the levy if provided free of charge.
• Parking spaces set aside exclusively for retail customer parking in the category 2 area receive a 50% concession if provided free for the first hour or to customers making a purchase.

Finally, the Bill imposes new registration requirements for owners and operators of car parks in the expanded levy area, with clear deadlines for registration to ensure proper administration and compliance.

Duties Act 2000

New Zealand citizens

A key amendment relates to New Zealand citizens and the foreign purchaser additional duty. Previously, the exemption for New Zealand citizens was based on holding a ‘special category visa’, which could lead to inconsistent outcomes depending on whether the individual was physically present in Australia at the time of settlement.

The Bill replaces this with a new residency test. The provisions outline that New Zealand citizens will only be exempt from the foreign purchaser duty if they ordinarily reside in Australia for at least six months within a defined period around the transaction. This change ensures that the exemption is available to genuine residents and closes a loophole that allowed non-residents to avoid the surcharge.

Custodian transfers

The Bill also introduces a new exemption for transfers of dutiable property involving custodians and sub-custodians under a trust. This addresses practical issues in trust administration, where property may need to be transferred between different custodians or trustees without any change in beneficial ownership. The exemption applies only to ‘internal’ transfers within a pre-existing and continuing trust, and not to transfers that alter the beneficial interests.

Tax reform scheme land

Further amendments to the Duties Act clarify the treatment of ‘entry interests’ for land entering the CIPT reform scheme. The Bill sets out new rules for calculating the quantum of an entry interest when a transaction is subject to a duty exemption or concession (other than certain reductions), ensuring that only the portion of the interest on which duty was actually paid is counted. This prevents anomalous outcomes where nominal duty could result in a larger interest being recognised for tax reform purposes.

Land Tax Act 2005

The Bill introduces several significant changes to the Land Tax Act 2005, with a focus on integrity and fairness of Victoria’s land tax regime.

The Bill substitutes the definition of a ‘natural person absentee’ to introduce a new requirement that a person who is not an Australian citizen or resident will be an absentee if they were absent from Australia for a total of 6 months during the previous calendar year.

New Zealand citizens

One of the most notable amendments is the introduction of a residency test for New Zealand citizens in relation to the absentee owner surcharge. Previously, New Zealand citizens could avoid the surcharge simply by being present in Australia on 31 December, regardless of their actual residency status. The Bill now requires that only New Zealand citizens who ordinarily reside in Australia will be exempt from the absentee owner surcharge, closing a loophole and ensuring that the surcharge applies more equitably.

Temporary residences

The Bill also creates a new exemption for land with temporary residences with the introduction of new sections 63A to 63H. This exemption is designed to support individuals who use temporary residences as their principal place of residence. Under the new legislation, a temporary residence is defined as any structure or vehicle that is capable of being used for habitation and for which an occupancy permit is not required. The Bill outlines that caravans, motorhomes, trailers, tents, sheds, and barns are examples of temporary residences.

The Bill outlines land will be ‘temporary residence land’ if:

• there is a temporary residence on the land
• there is no building affixed to the land for which an occupancy permit is required (including a building under construction or renovation)
• the land is not used by any person to carry on a substantial business activity
• the land is in a zone other than a non-residential zone
• the taxable value of the land is less than $300,000
• the owner of the land does not own any other land in Victoria.

The new provisions apply only if a natural person or vested beneficiary uses and occupies the property as their principal residence, and they preclude the exemption from applying if rent is paid by or on behalf of the vested beneficiary for use and occupation of the land.

This change recognises the diversity of living arrangements in Victoria and provides relief to those who might otherwise be unfairly taxed.

Vacant residential land tax

The Bill makes several targeted changes to the vacant residential land tax (VRLT) provisions.

Firstly, the definition of ‘alpine resort’ is expanded to include land located within the Dinner Plain locality, meaning residential land in Dinner Plain will be excluded from VRLT, recognising its seasonal nature similar to other alpine resorts.

Secondly, the deadline for owners to notify the Commissioner about vacant residential land and to apply for exemptions is moved from 15 January to 15 February each year, giving property owners additional time to comply with their obligations.

Thirdly, a new exemption is introduced for properties that were residential land at both the start and end of the preceding year but were not residential land for a period during that year, such as when a home is undergoing significant renovations or repairs. This ensures owners are not unfairly taxed when their property is temporarily uninhabitable due to genuine works.

Hardship

The hardship relief provisions have also been updated. The threshold for applications for hardship relief from land tax liability has been increased from $1,000 to $5,000, making relief accessible to a broader group of taxpayers. Importantly, the requirement for Treasurer approval has been removed, streamlining the process and allowing the Commissioner of State Revenue to grant relief directly.

Other changes

The Bill also introduces changes to the First Home Owner Grant and Home Buyer Schemes Act 2000, expanding eligibility for New Zealand citizens. Under the new provisions, New Zealand citizens can qualify for the First Home Owner Grant based on residency, rather than visa status, ensuring fairer access for genuine residents. The Bill also modernises administrative processes by clarifying when electronic service of documents is considered effective.

In relation to the Building Act 1993, the Bill clarifies and strengthens the calculation of building permit levies, particularly for cost-plus contracts, and requires more accurate reporting of building costs. It validates past estimates and calculations to prevent disputes and ensure certainty for builders and property owners. Additionally, consequential amendments are made to related Acts to align with the new calculation methods, supporting a more robust and transparent building permit levy system.

How SW can help

SW’s state tax specialists can help you interpret the new rules, assess your exposure, and optimise your position under the amended legislation. These changes are significant, affecting property, land tax, congestion levies, building permits, and more, and may have a direct impact on your property, business, or compliance obligations. Understanding the amendments is crucial to ensure accurate planning, avoiding unexpected liabilities, and taking advantage of available exemptions or concessions.

Contact your SW advisor to discuss how these changes may affect you and ensure you are well-prepared under the updated legislation.

Key contacts

William Zhang

Robert Parker

Blake Trad

The post Victoria’s State Taxation Further Amendment Bill 2025: What you need to know appeared first on SW Accountants & Advisors.

The Queensland Government will increase the rate of the additional foreign acquirer duty (AFAD) from 7% to 8% from 1 July 2024,

AFAD is levied on foreign buyers of residential property in Queensland, with ex gratia relief offered to Australian-based foreign entities whose commercial activities involve significant developments by adding to the supply of housing stock in Queensland (subject to eligibility requirements).

From July 2024, the Queensland Government will also increase the surcharge rate of land tax applied in addition to land tax rates for foreign companies, trustees of foreign trusts and absentees, from 2 %to 3%.

Ex gratia relief from the land tax surcharge will continue to be offered for Australian-based foreign entities whose commercial activities make a significant contribution to the Queensland economy and community (subject to eligibility requirements).

For further information we have released a summary about the different state foreign owner surcharge land taxes and duties.

Concluding remarks

While the increased rate of the AFAD will bring Queensland in line with Victoria and New South Wales’ foreign owner transfer duty surcharge rates, Queensland’s increased foreign owner land tax surcharge will still be more generous than other states.

How can SW help?

SW has considerable experience in assisting foreign investors to determine the most favourable state or territory to invest in property developments. Given foreign owner transfer duty surcharge rates are becoming more uniform across Australia, it may become less clear what are the specific advantages in investing in specific states and territories. However, other drivers that are still relevant to structuring foreign investments in specific states and territories include build-to-rent concessions, the availability of exemptions and ex gratia relief from surcharges, and the types of property assets that will be invested in.

If you would like any further information, please contact a member of the SW tax team.

Contributors

Eric Lay

The post QLD Budget | Foreign owner duty & land tax surcharge appeared first on SW Accountants & Advisors.

The session will cover the following topics:

• should you enter into agreements before or after 1 July 2024
• details on how the new CIPT regime will work
• impact on direct and indirect property acquisitions
• what exemptions apply
• the interaction between the CIPT and stamp duty (including landholder duty, lease duty and economic entitlements)
• impact on current projects
• who are the Winners and losers

Event details

Date

Wednesday 17 April 2024

Location

Online or in person at the SW Melbourne office, Level 10, 530 Collins Street, Melbourne

Time

12.30pm – 1:30pm (AEDT)

SW Speakers

Abi Chellapen
Director
SW

Stephen O’ Flynn
Director
SW

Blake Rodgers
Associate Director
SW

Robert Parker
Consulting Director
SW

Contact us

If you have any queries or would like more information, please contact the Marketing team via marketing@sw-au.com.

The post Commercial and Industrial Property Tax Reform webinar appeared first on SW Accountants & Advisors.

The Commercial and Industrial Property Tax Reform Bill 2024 was introduced into the Victorian Legislative Assembly on Wednesday 20 March. This follows the Victorian Government announcement of the final design details of the Commercial and Industrial Property Tax Reform in December 2023. The Government has asked for written submissions or suggested adjustments to the legislation by 3 April.

The CIPT will be an annual property tax with the Bill providing for the transition of qualifying land to the commercial and industrial property tax (CIPT) scheme.

CIPT key points

• The first purchase of a 50% or more interest in a property (directly or indirectly) after 1 July 2024 will be liable to stamp duty (either upfront or via a Government facilitated transitional loan over 10 years).
• Certain subsequent transactions will not be subject to duty under the Duties Act as long as the property remains qualifying land.
• The land will become subject to an annual CIPT after the expiration of 10 years from the land entering into the scheme. The rate of CIPT will be 1% of the site value of the land or 0.5% of the value of BTR land for qualifying build to rent schemes.
• Interestingly, the first purchaser of a 50% or more interest in a property after 1 July 2024 will be subject to both duty and the VCIP after 10 years (so effectively they will suffer double tax).
• The CIPT will not apply to transactions that occur pursuant to an agreement or arrangement entered into prior to 1 July 2024.

What type of properties and land will this apply to?

The reform will apply to Victorian qualifying commercial or industrial use land that fall within the below ranges of the Australian Valuation Property Classification codes (AVCC):

• 200–499, which relate to commercial, industrial and extractive industry uses
•  600–699, which relate to infrastructure and utilities uses or
• the land has been allocated more than one AVPCC in the latest valuation not all of which are in the above ranges, and the land is used solely or primarily for a use described in an AVPCC in the above ranges. Therefore, mixed use properties will be subject to the CIPT where the sole or primary use of the property is one of the above.

Student accommodation

Land will have a qualifying use if the land is solely or primarily used for eligible student accommodation which is defined to mean residential premises that are:

• designed for occupation by students of a higher education provider (higher education provider is defined later in this clause) and
• occupied or available for occupation by students of a higher education provider; and
• commercial residential premises within the meaning of section 195-1 of the A New Tax System (Goods and Services Tax) Act 1999.

Entry into the Scheme

Land with a qualifying use enters the scheme on the occurrence of:

• certain dutiable transfers or relevant acquisitions under the Duties Act 2000 in respect of that land and
• certain subdivisions and consolidation involving land already in the scheme.

Generally, a dutiable or landholder transaction brings land into the scheme if the transaction is not fully exempt from land transfer duty or landholder duty, and the transaction relates to an interest in land that amounts to a qualifying interest, being an interest of at least 50% in the land. 

Aggregation

There are aggregation rules that apply in determining if the 50% threshold has been met. Interests acquired with associated persons and acquisition of interests which occur with a 3-year period will be aggerated. Examples are provided in the Bill.

Who pays CIPT?

The owner of taxable land is liable to pay CIPT on the land.

The owner of CIPT taxable land is the same as the owner of the land for the purposes of the Land Tax Act 2005, however, the provisions deeming the holders of beneficial interests in certain trusts to be owners of land for the purposes of imposing land tax surcharges relating to trusts, are not applicable to CIPT.

Rate of CIPT

The rate of CIPT will be:

• for land other than BTR land: 1% of the taxable value of the land
• for BTR land: 0·5% of the taxable value of the land.

The taxable value of CIPT taxable land or part of CIPT taxable land is the same as the taxable value of the land or part under the Land Tax Act 2005. This is usually the site value contained in a valuation of land undertaken by the Valuer-General under the Valuation of Land Act 1960.

Exemptions from transfer and landholder duty on subsequent sales

There will be exemptions from transfer duty and landholder duty for certain transactions in relation to land that has entered the CIPT scheme.

Acquisitions of 100% interest in land

If the tax reform scheme land has entered the CIPT scheme through a transaction involving a 100% interest, no further duty is payable on a subsequent transaction.

Acquisitions of less than 100% interest in land

Where an interest of over 50% is acquired (but less than 100%), a subsequent transaction which relates to a different interest in the land may be subject to duty for a 3 year period or until full duty has been assessed on the interest (whichever occurs sooner).

The Bill includes as an example:

Person A acquires a 50% interest in a landholder under a relevant acquisition which occurs on 1 September 2025. The landholder holds a 100% interest in land. This relevant acquisition amounts to an interest of 50% in the land which is a qualifying interest and the qualifying landholder transaction is an entry transaction. Person B holds the remaining 50% interest in the landholder. On 1 January 2026, Person C acquires a 100% interest in the landholder from Person A and Person B. The value of the land holding of the landholder is to be excluded from the calculation of duty to the extent that the interest acquired by Person C is the same, or substantially the same, as the entry interest for the land (50%). The value of 50% of the land is included for the purposes of assessing duty on the relevant acquisition made by Person C.

Change in use

Where there is a change of use of land to a non-qualifying use (such as a rezoning to a residential use) after an exempt transaction, duty becomes payable on that transaction by the transferee.

Duty is assessed on the previous transaction based on the dutiable value of the land at the time of that transaction, not at the time of the change of use.

The amount of duty is to be reduced by 10% for each calendar year that has elapsed since the date of the transaction that is being assessed for duty. Note this is not necessarily the entry date of the land to the CIPT scheme.

Exclusions from the CIPT

As noted above, only commercial and industrial land (as well as student accommodation) is captured by the CIPT. Properties primarily used for residential, primary production, community services, sport, or heritage and culture purposes will not be captured.

The following transactions will also be excluded and will remain subject to duty regardless of whether the land has entered the CIPT transition:

• grant or transfer of leases
• economic entitlements.

Furthermore, transactions eligible for corporate reconstruction and corporate consolidation exemptions or concessions will not trigger entry into the CIPT regime.

Also as noted above, dutiable transactions and landholder acquisitions which are eligible for an exemption will not result in entry into the CIPT transition.

Our observations

• It is clear that there will be a number of complexities in the transition to the new CIPT regime.
• Some transactions, such as the grant of a dutiable lease or an economic entitlement in relation to land that has entered the tax reform scheme will remain subject to duty.
• Some dutiable transactions will not result in qualifying land becoming tax reform scheme land such as an acquisition of a direct interest in land of less than 50% or a landholder transaction involving an interest of less than 50%. Unless aggregated with other transactions to reach the 50% threshold, the land will not enter the scheme. The overlay between the landholder regime and the CIPT regime is complex and require further consideration by the Government.
• If transacted multiple times, the same minority interest may incur multiple amounts of transfer or landholder duty before the land enters the scheme (e.g. a 20% interest in a landholding unit trust that is transferred multiple times may incur duty each time it is transferred but the land will not enter the scheme even though the total duty payable may be equal to or more than the duty payable on a 50% direct interest).
• The application of the aggregation rules are complex but appear to not apply to aggregate interests acquired directly in land with interests acquired in a landholder that holds that same interest in the land.

How SW can help

This is a significant change in the application of duty to commercial and industrial property. For advice on how this will impact acquisitions in your pipeline or for assistance in modelling the tax payable on proposed acquisitions, reach out to your SW contact or one of the key contacts below.

Key contacts

Robert Parker

The post Victorian Property Tax Reform appeared first on SW Accountants & Advisors.

On Sunday 10 December, the government announced property tax changes to penalise overseas investors buying homes which are left vacant as well as cutting tax for Build-to-Rent investors. The reform is a bid to increase housing supply, however the effectiveness of these measures to address the broader housing crisis remains open to debate.

Increased costs for foreign buyers

From 2024, foreign investors purchasing established Australian homes will face tripled application fees.

Currently, the application fee charged to foreign investors for buying established homes in Australia is calculated on the property’s value. For instance, properties priced between $1m and $2 m incur an application fee of $28,200. This rises to  a maximum of $1,119,100 for residential acquisitions of more than $40 million.

Additionally, if these properties are left vacant, the investors will incur an equivalent amount as a vacancy fee. 

The tripling of application fee effectively is a six-fold increase in total fees (application plus vacancy fees) for properties bought since 9 May 2017. A vacant property costing between $1m to $2m will have an application fee of $84,600 and an annual vacancy fee of $84,600.

The new measures specifically target established dwellings, encouraging foreign investors to focus on new housing developments. This shift is intended to stimulate the construction sector, creating jobs and contributing to economic growth.

Incentivising ‘Build-to-Rent’ projects

To promote investment in new housing stock, the government is reducing application fees for Build-to-Rent projects. From 14 December 2023, the application fees for Build-to-Rent projects will be set at the lowest commercial rate – irrespective of the nature of the land involved. This initiative aims to make Australia’s foreign investment framework more consistent and attractive for long-term rental housing developments.

However, it’s important to note that this is in contrast with the proposed Federal thin capitalisation changes. Thin capitalisation involves tax reforms to ensure multinational companies pay their fair share, focusing on entities funded by high levels of debt over equity. For the latest update on the proposed changes, we have recapped the Thin Capitalisation rules.

Enhanced compliance measures

To strengthen the enforcement of its new property investment rules, the government is significantly increasing funding for the ATO. This aims to ensure strict adherence to the new regulations by foreign investors. A key regulation is the requirement for foreign nationals to sell their Australian properties upon leaving the country unless they have secured permanent residency.

This commitment to enhanced enforcement goes beyond merely introducing new rules; it reflects a concerted effort to effectively monitor and enforce compliance. Foreign nationals are typically barred from purchasing existing properties. This approach underscores the government’s dedication to addressing the complexities of the housing market and ensuring the integrity of its foreign investment framework.

The new foreign investment rules primarily impacts foreign investors, with increased fees and stricter compliance requirements. The construction industry may see growth from incentivised new housing projects. Australian residents, particularly those seeking affordable housing, could benefit from these changes. Real estate developers involved in Build-to-Rent projects are likely to gain from lower fees, encouraging investment in this sector. The repercussions of these changes are thus widespread, affecting various stakeholders in the property market.

Get in touch with SW

Get in touch with our property experts to learn more about how these new regulations affect you.

In light of these proposed changes, we encourage all stakeholders in the Australian property market to stay informed and actively engage with the evolving landscape. For further updates, insights, and guidance on navigating these new regulations, be sure to follow us on LinkedIn.

Contributors

Rahul Sanghani

The post New foreign property investment rules to combat housing crisis appeared first on SW Accountants & Advisors.

VRLT will continue to be payable at 1% of capital improved value of residential property that has been vacant for at least 6 months in a calendar year. The change will take effect from 1 January 2025, effectively capturing land which is vacant for more than 6 months during 2024. VRLT will also expand to apply to residential land that remains undeveloped for five years or more from 1 January 2026.

The existing exemptions for holiday homes and properties being renovated will remain in place. Developers that currently hold vacant land will receive a two-year extension, if they have received a building permit in the initial five-year period in which the land is vacant.

The State Revenue Office (SRO) will have the power to extend the five-year period in certain circumstances that are beyond the control of the developer.  The SRO will also have considerable discretion to determine exemptions.

Underlying reasons for the changes

These changes come as part of the government’s push to meet its target to build 80,000 extra homes per year.

The changes look to put pressure on Victorian owners of vacant homes and land to make the homes available for rent or sale and develop vacant land. This much was confirmed in Treasurer Tim Pallas’ speech to the Property Council in which he stated that the “clear message to landowners is to either develop land or sell it to someone who will”.

Impacts

The impacts of the current and new measures are outlined as follows:

In focus

Statewide expansion from 1 January 2024

• references to a ‘specified geographic area’ will be removed from the Land Tax Act 2005, allowing the VRLT to be expanded to include all vacant residential property statewide
• the current exemptions will still apply
• the tax rate will remain at 1 per cent.

Undeveloped land from 1 January 2025

The VRLT will apply to vacant residential land that has been vacant for 5 years or more if the land is:

• within a municipal district of a Council listed in the new Schedule 2B (essentially all Melbourne Metropolitan local government areas), and
• within a zone other than a ‘non-residential zone’ (these  are based on AVPCC numbers specified in the Bill), and
• not solely or primarily used for or under development for a non-residential use.

This 5-year period will apply in instances where the land has had the same ownership during the 5 year period.

Land is under development for a non-residential use if:

(a) an application is made for a permit 10 under the Planning and Environment Act 1987 in relation to the use or development of the land for a non-residential use; or

(b) a request is made under the Planning and Environment Act 1987 for an amendment to a planning scheme that would authorise a non-residential use of the land; or

(c) an application is made for a permit or 20 approval under the Building Act 1993 in relation to the use or development of the land for a non-residential use.

Exemptions from the VRLT is available for:

• land contiguous to land used as a principal place of residence where it has the same owner
• land that cannot be developed for residential purposes due to its physical attributes, or where a matter prohibits lawful use or development, such as a restrictive covenant or environmental orders.

Commissioner discretion

• The Commissioner of State Revenue will be granted significant discretion to grant exemptions from VRLT if:
  • Land is intended to be solely or primarily used or developed for non-residential use; and
  • There is an acceptable reason for the land not yet being used or developed in that way.
• The Commissioner has the power to determine that land is ‘not vacant’ if a residence is to be constructed and there is an acceptable reason that this has not commenced.
• The Commissioner may impose the VRLT under its discretion if the land is deemed to have been transferred with the intention of receiving a reduction or exemption.

Full details are outlined in the Bill which is currently before parliament and the accompanying Explanatory Memorandum.  Debate on the Bill will resume later this month, with it being likely that the Bill moves to the Legislative Council in November.

How SW can help

Reach out to our state taxes experts if you would like to discuss the potential impact of these changes on your current or future property or land holdings. The SW team can also assist with applying to the Commissioner for exemptions, where applicable.

Contributors

Robert Parker

Blake Trad

The post Government announces expansion of vacant residential land tax in Victoria appeared first on SW Accountants & Advisors.

Summary

Section 26-102 of the Income Tax Assessment Act 1997 denies land holding cost deductions where there is no substantial and permanent structure in use or available for use on the land. Various exceptions apply, including where the land is in use for carrying on a business, or the taxpayer is a company. Ruling TR 2023/3 clarifies the ATO’s view on Section 26-102 and provides examples to illustrate its application.

The main points of this ruling are:

• deductions are permissible only when the land is actively used in income-generating business activities or meets specific criteria, such as having a substantial and permanent structure.
• the structure must be in use or available for use.  Residential premises constructed or substantially renovated must be lawfully able to be occupied and this would occur when the certificate of occupancy is received
• various exceptions are provided, including for corporate entities and certain trusts
• property developers would typically be carrying on a business – however not always where the land is owned in a Special Purpose Vehicle (SPV)
• the relevant area of land for the purposes of section 26-102 is determined by the area that the relevant loss or outgoing relates
• the timing of expenses and income-earning activities is important in determining the deductibility of interest expenses.

Key Concepts

Structure in use or available for use

Section 26-102 specifies that deductions are permissible only when the land is actively used in income-generating business activities or meets specific criteria, such as having a substantial and permanent structure. A substantial and permanent structure is one that is fixed to the land and has a degree of durability and permanence. Examples of such structures include buildings, sheds, silos, windmills, and solar panels.

Carrying on a business and property developers

Section 26-102 does not apply where the taxpayer is using the land in carrying on a business. The Ruling states that whether activities on the land amount to ‘carrying on a business’ is a question of fact’.  Property developers will generally not be affected by Section 26-102 provided they are carrying on a business.  Land held by a developer for future development would be considered ‘available for use’. 

However, where land is held in an SPV (with no other activities), special consideration should be given to whether the SPV is carrying on a business. 

Relevant Area and multiple titles

The Ruling provides some practical guidance where holding costs relate to:

• Only a portion of the land under a single title, or
• Across multiple titles

Where the holding costs relate to only part of the land under a property title then for the purposes of determining if there is a substantial and permanent structure on the land, it is sufficient that such a structure exists somewhere on that part of the land. The structure does not need to take up all of that part of the land or all the land under the property title.

Where the holding costs relate to land held under multiple titles, the Ruling states that it will be sufficient where a substantial and permanent structure exists somewhere on the area of land to which the loss or outgoing relates.

Implications

The deductibility of holding costs becomes more complex for non corporate taxpayers.

Individuals may find their ability to claim deductions for holding costs like property taxes and loan interest limited, depending on the land’s usage. The ruling narrows the scope for claiming these deductions, making the land’s actual usage a pivotal factor.

Companies have a distinct advantage when it comes to deductions for holding vacant land. Corporate tax entities are generally exempt from limitations on claiming deductions for holding costs of vacant land during the income year in which the loss or outgoing is incurred. This exemption provides these companies with greater flexibility in their tax planning strategies, allowing them to optimise their tax position while holding vacant land for business purposes.

When vacant land is held in a SPV the situation becomes complex. If the SPV is not a company (or owned by companies), the SPV must meet specific criteria to be eligible for deductions, such as actively using the land or making it available for use in a business. Failure to meet these criteria could result in the SPV being ineligible to claim deductions for holding costs, which could have significant tax implications.

Example: Holding Land in a Company vs. a Discretionary Trust

The following table compares the situations of holding land in a company versus a discretionary trust:

Actions required

1. Review Current Holdings: Examine your vacant land holdings to assess how the ruling impacts your ability to claim deductions
2. Analyse Business Activities of land owners (particularly SPVs): Determine whether you are entitled to rely on the carrying on a business exemption and whether SPVs would qualify
3. Documentation: Ensure proper documentation is in place to substantiate any claims for deductions
4. Strategic Planning: Re-evaluate your long-term investment or business strategies in light of this ruling and make necessary adjustments.

How SW can help

Understanding the application of TR 2023/3 is essential for anyone holding or planning to hold vacant land. Keeping abreast of these rules and seeking professional advice can save both time and money, helping to avoid potential pitfalls down the line.  Our expert team is here to support you every step of the way.

Contributor

Rahul Sanghani

The post ATO Ruling TR 2023/3: Impact on deductibility of holding vacant land expenses appeared first on SW Accountants & Advisors.

The training session provided the opportunity to maintain and develop expertise in managing the compliance for property funds, and assist with processes when working with an accounting firm such as ours.

The session delivered a deeper insight into the technical and information requirements when preparing accounts, demonstrated how tax components are calculated and common accounting vs. tax differences.

Our property fund experts spent time running through the basic accounting and tax knowledge of property trusts, and extended across the following topics:

• Recent 2023-24 Federal Budget update
• Recent 2023-24 Victorian and WA State Budget update
• Key financial reporting requirements for funds
• Common issues for ordinary trusts, MITs and AMITs – including issues that also affect equity and debt funds

SW Speakers

René Muller
Partner, Assurance and Advisory Services
SW 

Luke Fernandes
Associate Director, Tax
SW 

The post Property funds | Tax & Accounting technical training appeared first on SW Accountants & Advisors.

The training session provided the opportunity to maintain and develop expertise in managing the compliance for property funds, and assist with processes when working with an accounting firm such as ours.

The session delivered a deeper insight into the technical and information requirements when preparing accounts, demonstrated how tax components are calculated and common accounting vs. tax differences.

Our property fund experts spent time running through the basic tax knowledge of property trusts, and extended across the following topics:

• Removal of special purpose financial reporting
• Key financial reporting requirements for property funds
• Managed Investment Trusts and Attribution Managed Investment Trusts
• General taxation of trusts
• Calculation of taxable income and tax deferred income
• Accounting vs. tax differences and common adjustments

SW Speakers

René Muller
Partner, Assurance and Advisory Services
SW 

Luke Fernandes
Associate Director, Tax
SW 

Carmelin De Francesco
Senior Manager, Tax
SW 

The post Property funds | Tax & Accounting technical training appeared first on SW Accountants & Advisors.