Most people are aware that Land Tax in Victoria generally applies when you own certain properties such as a holiday house, investment property or commercial property.
Land Tax Overview
Land Tax (Vic) is an annual tax based on the total taxable value of all the land you own in Victoria as at 31 December of the preceding year of assessment. There are a number of exemptions available such as your home (Principal Place of Residence – PPR) and farmland (Primary Production land).
There has been recent media attention on land tax applying to home-based businesses. Many homeowners assume that if they operate their business from home (Principal Place of Residence – PPR) then they would be exempt from land tax however this is not necessarily correct. The State Revenue Office of Victoria have recently been issuing land tax audits to homeowners who are running a home-based business. This includes small businesses who operate from their home or a shed or garage on the property.
Despite the media attention, there hasn’t been any recent changes to whether home-based businesses are subject to Land tax.
Substantial business activity
A key determinate in whether you will be liable for land tax is whether your home-based business meets the definition of a 'Substantial business activity' as defined in the Land Tax Act 2005 – S62 Partial exemption if land used for business activities.
There is also Revenue Ruling LTA.001V2 (issued April 2013) which provides some guidance on how the Commissioner (SRO) has interpreted the law with a given set of circumstances. It discusses a number of factors that may be considered when determining if a substantial business activity is being conducted.
These include whether $30,000 (gross) income is derived from the business activity and/or if more than 30% of the PPR land or building area is used partly or solely for business purposes.
It also considers whether paid employees or contractors (other than relatives who ordinarily reside on the property) work on the land, whether a council permit is required and the extent & nature of income tax deductions claimed for the business activity.
What has changed?
The increase in assessments and audit activity appears to have arisen (partly) from a change in the land tax threshold.
From 2024, the Land Tax threshold (General Rate) for all Victorian landholders where you are required to pay land tax was reduced from $300,000 to $50,000.
To put the rate change in perspective, consider a small business who is operating from their home (PPR) using 20% of the floor area of the house solely for their business (and was considered to have substantial business activity due to its turnover and other activities). The land tax apportionment is based on either the floor space of a building or land area.
Prior to 2024, the Taxable Value of the land would need to be $300,000 before the business owner would be required to pay land tax on the 20% non-exempt portion.
From 2024, once the Taxable Value of the land reached $50,000, land tax would be payable on the 20% non-exempt portion.
This reduced threshold increases substantially the number of Victorian landholders who will be liable for land tax.
Data Matching
The State Revenue Office obtains data relevant to their activities from other government and non-government agencies.
While it’s unclear exactly which data the SRO are using for these recent audits, there is a significant amount of information businesses provide to other government agencies such as the Australian Taxation Office (ATO).
When businesses lodge a tax return, they are required to disclose numerous details including business address, gross business income, contractor payments, rent and associated wages/payments. Single Touch Payroll filing also provides the ATO with up-to-date information on employees and payments.
Do you need Assistance?
Registered tax practitioners will often provide factual information i.e. thresholds in regards to land tax however as it is a State based tax only qualified legal practitioners can provide advice in respect to your personal circumstances.
The State Revenue Office of Victoria runs education sessions regularly and you can register via their website.
https://www.sro.vic.gov.au/webinar/land-tax-overview-34