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Practice Update
December 2023
🔶 TAX ALERT: CHANGES TO VACANT RESIDENTIAL LAND TAX IN VICTORIA 🔶
Background
As of December 31, 2024, Vacant Residential Tax (VRLT) affects properties in 16 of Melbourne’s inner and middle suburbs, in addition to other applicable land taxes. A property is deemed “vacant” if not lived in for more than six months in a calendar year, determined by the preceding year’s land use.
VRLT is an annual tax on vacant land (with exemptions), set at 1.0% of the capital improved value (CIV) for the year ending December 31, 2024.
New Changes:
The State Taxation Acts and Other Acts Amendment Bill 2023 (Vic) has passed, introducing significant changes to VRLT rules effective January 1, 2025, and 2026.
Application of VRLT to all vacant residential land in Victoria - From January 1, 2025, VRLT will apply to all vacant residential land in Victoria, extending beyond the current 16 inner and middle suburbs.
Extension to “Unimproved Land” in Metro Melbourne - Starting January 1, 2026, land under significant renovation in certain metro Melbourne areas will not be considered vacant for up to five years.
Application of increased VRLT rate - The VRLT rate will now increase annually for consecutive vacant years:
For the year ending December 31, 224, the VRLT rate is 1.0% of the CIV of taxable land. Amendments proposed by the Victorian Green Party members involve a tiered increase in the VRLT rate for consecutive vacant years starting from January 1, 2025:
1 year: 1.0%
2nd consecutive year: 2.0%
3rd consecutive year: 3.0%
If the land was subject to VRLT in the prior tax year (January 1 to December 31, 2024) but not the year before (January 1 to December 31, 2023), a 2.0% VRLT rate will apply from January 1, 2025. Moreover, if the land incurred VRLT in the last two preceding tax years (January 1 to December 31, 2023 and 2024), a 3.0% VRLT rate will be applicable from January 1, 2025.
Enforcement Trial with Utility Data – The Victorian Government will launch a trial using utility data (electricity and water usage) to identify potentially vacant properties, starting in 2024 with apartments and expanding in 2025 to inner and middle suburbs. This aims to enforce VRLT, moving away from self-reporting.
🔶 TAX ALERT: ALIGNMENT OF TAX TREATMENT FOR ON-MARKET AND
OFF-MARKET SHARE BUY-BACKS BY LISTED PUBLIC COMPANIES 🔶
In February 2023, the Treasury Laws Amendment (2023 Measures No. 1) Bill 2023 was introduced to enhance the integrity of off-market share buy-backs by listed public companies, following announcements in the October 2022-23 Federal Budget. Previously, differences existed in the tax treatment between off-market and on-market buy-backs.
They key change introduced by the Bill, now that it has received Royal Assent, is the alignment of tax treatment for off-market and on-market share buy-backs undertaken by listed pubic companies. Specifically, no part of the purchase price in response to an off-market share buy-back will be considered a dividend.
These changes have retrospective application to buy-backs announced after 7:30pm (AEDT) on October 25, 2022. Consequently, for off-market buy-backs, sellers are no longer assessed on any portion of the purchase price as a dividend; instead, they are evaluated based on the sale as a revenue or capital gain or loss.
🔶 ADJUSTMENTS TO THE LATEST THIN CAPITALIZATION FRAMEWORK 🔶
On November 28, 2023, amendments to the Treasury Laws Amendment (Making Multinationals Pay Their Fair Share – integrity and Transparency) Bill 2023, containing proposed reforms to Australia’s thin capitalization regime, were released ahead of Senate introduction. These are likely the final changes before the Bill completes Parliament passage, providing a comprehensive view of the new regime.
Key amendments, following a brief October 2023 consultation, include deferring debt deduction creation rule implementation until July 1, 2024, narrowing the scope of applicable arrangements, allowing excess tax EBITDA to certain entities in addition to unit trusts, and broadening the third-party debt test. The Senate referred proposed amendments to the Senate Economics Legislation Committee on December 5, 2023, delaying enactment until at least February 2024.
The proposed thin capitalization regime for “general class investors” applies broadly from July 1, 2023, with three tests: fixed ration, group ratio, and third-party debt. Noteworthy features and tests are summarized in the table.
Amendments to the debt deduction creation rules aim to exclude genuine commercial transactions. Changes include exemptions for specific Type 1 transactions and a deferral until July 1, 2024. Type 2 scope is narrowed to specific payments and distributions, easing application.
Changes to the third-party debt test expand its application, removing the ‘Australian resident’ requirement, permitting interest rate swap cost deductions, and modifying permissible recourse assets. The amendments also allow for the recovery of costs in conduit financing.
Excess tax EBITDA provisions are expanded to include companies and partnerships, offering more flexibility in investment choices.
Other amendments address tax EBITDA calculations, adjustments for forestry industry deductions, treatment of dividends, assumptions for tax losses, AMITs, R&D entity deductions, ACA provisions for tax-consolidated groups, and minor clarifications.
In summary, the amendments enhance the proposed thin capitalization regime, providing clarity on rules, deferring implementation, and addressing stakeholders’ concerns.
🔶 ATO’S LODGMENT PENALTY AMNESTY NEARS CONCLUSION🔶
The Australian Taxation Office (ATO) is offering relief on failure-to-lodge penalties for qualifying small businesses, but time is running out. Businesses yet to take advantage of the ATO’s lodgment penalty amnesty have until December 31, 223, to avail themselves of this opportunity.
To be eligible for the amnesty, businesses must fulfill the following criteria:
Annual turnover under $10 million when the original lodgment was due.
Overdue income tax returns, business activity statements, or FBT returns that were due between December 1, 2019, and February 28, 2022.
Lodge between June 1 and December 31, 2023.
Upon lodging their eligible income tax returns, business activity statements, and FBT returns within the specified period, taxpayers will have failure-to-lodge penalties automatically remitted, eliminating the need for a separate application.
It’s important to note that the amnesty does not extend to privately owned groups or individuals controlling over $5 million of net wealth.
Directors who bring their company lodgments up to date may also benefit from penalty remission. If directors rely on company lodgments to finalize their own tax affairs, any failure-to-lodge penalties incurred will be remitted. This provision applies to eligible lodgments made between June 1 and December 31, 2023. Take advantage of this limited-time opportunity before the amnesty ends.
🔶 UNLOCKING TAX BENEFITS:
MAXIMIZING DEDUCTIONS FOR YOUR HOLIDAY HOME🔶
When claiming deductions for a holiday home, taxpayers must ensure that expenses are incurred for the purpose of generating rental income. Consider the following to determine valid rental deductions:
Personal use: Assess the number of days the property was used for personal reasons during the income year. Deductions cannot be claimed for these periods.
Advertising methods: Evaluate how and where the property was advertised for rent. Ensure that the advertising methods are transparent and in line with market values. Obscure means or unreasonable conditions may affect eligibility to claim deductions.
Property Conditions: Consider whether any property restrictions or its overall condition may deter potential holidaymakers. Deductions may not apply if the property is not in a suitable condition for tenants.
Private use by owner or family: Identify if the taxpayer, their family, or friends have used the property. Deductions cannot be claimed for periods of private use or when the property is left vacant for personal reasons.
Tenant Restrictions: Confirm that no part of the property is off-limits to tenants. When claiming deductions, accurately calculate and apportion them based on the portion of the property that is available for rent.
🔶 IMPORTANT NOTICE: DECEMBER 2023 QUARTER
SUPERANNUATION GUARANTEE (SG) DEADLINE 🔶
Employers are urged to be mindful of their Superannuation Guarantee (SG) obligations for the quarter ending on December 31, 2023, with the deadline for compliance set on January 28, 2024.
It is crucial for employers to ensure paying the correct SG amount on time. Failure to meet this deadline will result in the imposition of the SG charge, encompassing penalty fees and interest.
For the 2024 income year, the SG rate stands at 11.0%.
Contact us and let us assist you in fulfilling the necessary obligations responsibilities to avoid potential penalties and maintain compliance.
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If you have concerns and questions regarding these issues, feel free to contact the Lynden Group at info@lyndengroup.com.au or give us a call at (03) 8548 1843.
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