The Treasurer has released new guidelines, effective from 5 January 2018, regarding the factors to be considered when determining whether an absentee owner is entitled to an exemption from the absentee owner land tax surcharge (AOLTS).
We’ve summarised below the changes from the old guidelines, as well as the significant new guidelines.
The new guidelines:
- still only outline factors to be considered, but additional detail has been given in relation to those factors;
- give greater guidance in relation to granting the AOLTS exemption to an absentee discretionary trust;
- do not permit a corporation that is incorporated outside Australia to be granted the AOLTS exemption (contrary to the old guidelines);
- expand the scope of what it means for an absentee corporation or trust to “significantly contribute to the Victorian economy and community”;
- contain a new requirement for an absentee corporation or trust to exhibit “good corporate behavior” in order to be considered for the AOLTS exemption; and
- delete the need to consider relevant circumstances in relation to “competition” in determining whether to grant the AOLTS exemption.
Factors to consider in determining whether the AOLTS exemption should be granted
The new guidelines provide further scope and examples in relation to the factors to consider in relation to granting the AOLTS exemption, for example it is less likely to be given:
- where say 100% of an absentee corporation is owned and controlled by an absentee person, compared with an absentee corporation that is owned and controlled 51% by an absentee person and 49% by Australian citizens;
- the greater the frequency and impact of the absentee person’s (a person who holds an absentee controlling interest in a corporation) role in the management and operation of the corporation’s activities; and
- where the absentee corporation does not have management staff in Australia.
The new guidelines distinguish between the factors to consider in relation to absentee corporations versus absentee trusts. Specifically, the new guidelines give greater guidance in relation to granting the AOLTS exemption to an absentee discretionary trust where it is not possible to quantify a beneficiary’s interest in the trust. The AOLTS exemption is less likely to be given in relation to an absentee discretionary trust:
- the greater the frequency or proportion of distributions to the absentee beneficiary; and
- the closer the relationship between the absentee beneficiary and the trustee or the appointor of the trust.
Corporation incorporated outside Australia
The new guidelines specify that a corporation that is incorporated outside Australia will not be considered for the AOLTS exemption. This was not the case under the old guidelines, under which a corporation incorporated outside Australia is included in the definition of “absentee corporation” for the purposes of the guidelines.
Other relevant circumstances to consider
Significant contribution to the Victorian economy and community
The new guidelines expand on the requirements for an absentee owner (corporation or trust) to significantly contribute to the Victorian economy and community, in order to be considered for the AOLTS exemption. It is more likely the AOLTS will be exempted:
- the greater the extent of the commercial activities of the absentee corporation or trust in Victoria;
- the greater the number of local workers engaged;
- the greater the amount expended on local resources (materials and services).
The following factors may also be relevant:
- the size of the commercial activities relative to the landholdings of the absentee owner; and
- the commercial activities of the corporate group that is 100% owned by the parent entity.
The AOLTS exemption is not intended to be granted to an absentee corporation or trust whose business activities in Victoria are primarily limited to being that of a landlord or property investor.
Good corporate behavior
A corporation will be regarded to exhibit good corporate behavior where it has complied with all laws, including:
- FIRB requirements;
- Australian laws relating to governance of the entity; and
- Victorian taxation laws, noting it is unlikely the AOLTS exemption will be granted to:
- an absentee corporation or trust with significant and outstanding tax liability; and
- an absentee corporation or trust that has a history of underpaying its Victorian tax liabilities.
Consideration may also be given to the corporate behavior of other entities in which the directors and shareholders of the absentee corporation have an interest.
The ability of the absentee corporation to complete fairly in the Victorian marketplace, and whether Australian-based absentee corporations would be at a competitive disadvantage, is no longer a relevant consideration in assessing whether the AOLTS exemption should be granted.
If you think that the surcharge might apply to you, or if you have any questions, get in touch with us.
The Treasurer has also released new guidelines on factors to be considered when determining whether a “foreign purchaser” is entitled to an exemption from foreign purchaser additional duty. We’ll cover this in our next post.