KPMG Australia's Global Mobility practice conducts tax briefings everyday with expats leaving Australia for overseas assignments. These are helpful as no one likes to be surprised when it comes to tax, so it's best you speak to a tax advisor prior to leaving the country when it comes to your main residence.
Too often I hear from exasperated individuals who have fallen foul of the Victorian Office of State Revenue (SRO).
With so many items on your moving to-do list it's hard to blame the well-intentioned expat who forgets to update the status of their main residence before they leave the country and start renting it out.
Principal place of residence exemption
While Australian residents are entitled to the PPR (principal place of residence) exemption on land tax, expats unfortunately are not afforded this option when they begin to rent out their property while abroad.
Essentially, you are exempt while you live in your PPR but the whole situation changes when you begin deriving rental income or, if after six months, the land has not been continuously used as a PPR by an individual owner or vested beneficiary e.g. your children, family or friends.
You probably don't remember this but when you moved into the property you lodged a Notice of Acquisition of an Interest in Land which advised the Government that you would be living in the property as your PPR. This made you exempt from Land Tax.
Updating for land tax and notifying the SRO
It is your responsibility to notify the Office of State Revenue of a change of circumstance, for example, an expat assignment where you will rent or leave the property vacant. If you don't, penalties and interest may apply. We'll have more on this later.
Land tax is assessed on a calendar year basis on the land you own at midnight on 31 December the year before your assessment is issued in Victoria.
In Victoria, you must notify the SRO by 15 January of the following year of any land that you own. This can be done online via My Land Tax – the portal used to manage land tax matters.
If you've never paid land tax before, there is some good news; it is a deduction against your rental income!
Example
Lawrence the Assignee
Lawrence is an Australian citizen who works for ABC Company. He has recently accepted a secondment to the United Kingdom (UK) for two years.
Lawrence decides to rent his property while he is away. Lawrence must notify the SRO of this change. In the hurry of getting ready for his move, Lawrence fails to update the SRO of the change in status of the property within 60 days as required.
Lawrence has now committed a notification default under the Taxation Administration Act 1997. Therefore, he is likely to be liable for penalty tax on the amount of land tax he is required to pay.
If Lawrence:
- Notifies the SRO voluntarily, before they start an investigation, that he is an absentee owner;
** penalty tax of 5 percent is waived (for taking reasonable care). - Notifies the SRO that he is an absentee owner after they start an investigation;
** he will likely be required to pay 20 percent in penalty taxes. If he doesn't cooperate that goes up to 25 percent! - Is found to have intentionally attempted to circumvent or disregard the law and hindered the SRO's investigation;
** he will likely be required to pay up to 90 percent in penalty taxes.
What about the Absentee Owner Surcharge?
In Victoria, there is a special tax for absentee individuals. It probably sounds like this would apply to an expat right? Wrong.
I met one individual who accidently lodged paperwork to indicate that this applied to his situation and was hit with a nasty tax bill. We were happy to help him undo the additional surcharge of 4 percent. Expats abroad are NOT subject to the Absentee Owner Surcharge.
The Victorian Absentee Owner Surcharge does not apply to Australian citizens and Australian residents. Australian residents are defined as the holders of a permanent visa, and New Zealand citizens who hold a special category visa.
Investors or holders of more than one property
Investors must be aware of the land tax implications of owning multiple properties.
Land tax is levied on the total land value of any and all properties you may own, instead of being levied individually on each property. As of 1 January 2024, the land tax-free threshold in Victoria lowered from $300,000 to $50,000 ($25,000 if the property is held is under a trust).
If you own multiple properties, or are managing build to rent (BTR) schemes, there are a number of land tax implications to be aware of.
Holiday homes and other residences
In Victoria, all residential land is subject to VRLT (vacant residential land tax) if it is vacant for more than 6 months.
From 1 January 2025, the way VRLT is levied has changed in Victoria. It applies to land with a vacant residential property on it, anywhere in Victoria, with no threshold.
For the first year that your land becomes liable for VRLT, you must pay 1 percent on the CIV (capital improved value) of your home. This increases to 2 percent in the second consecutive year, capping out at 3 percent.
There is an exemption available where you, a relative, or bested beneficiary or relative use or occupy the home as a holiday home for at least four weeks of the preceding fiscal year, and occupy another home as your PPR, you will not be liable to pay VRLT.
This is also where an expat can get caught out and be subject to land tax. If Lawrence left his property empty for six months, he would be liable to VRLT.
The Victorian Government does not want unutilised homes. The vacant residential land tax makes this abundantly clear.
Build to rent scheme exemptions
If you are managing a BTR scheme, both Victoria and New South Wales (NSW) offer a 50 percent reduction on the taxable value of the land. This means that ultimately, you will only be liable to pay tax on half the value of the land for up to 30 years.
There are several requirements to adhere to when establish a BTR scheme, so you should consult with your property manager to ensure that your project meets the criteria to be eligible for the exemption in Victoria.
Failure to adhere to the exemption criteria can result in a ‘clawback’ of land tax for past years in which the concession was granted.
Tax equalisation consequences for employers
There are not a lot of equalisation policies that cover personal income. If they do, there are usually very low limits. But there are still some companies out there equalising an expat's total investment income.
As an employer, you need to think carefully about whether you are able to bear the burden of any land tax your employee may be liable to.
Particularly where it's the VLRT and there isn't an income stream from rent to offset the expense. You need to consider whether your business can afford to absorb the cost of land tax and any penalties and interest that the SRO is likely to levy where the appropriate notifications are missed.
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