On 1 October 2018, the Victorian Government published guidelines in relation to the Treasurer’s discretion:

  • under section 3B of the Land Tax Act 2005 (Land Tax Act), to exempt absentee persons who hold an absentee controlling interest in a corporation from being taken to hold that controlling interest;
  • under section 3BA of the Land Tax Act, to exempt absentee beneficiaries of an absentee trust from being taken to be an absentee beneficiary of that trust; and
  • under section 3E of the Duties Act 2000 (Vic) (Duties Act), to exempt a person who has a controlling interest in a foreign corporation, or a substantial interest in the capital of a trust estate of a foreign trust, from being taken to hold that interest.

The effect of the exemptions are as follows:

  • Under section 3B of the Land Tax Act, if an exemption has been granted for all of the absentee persons who hold an absentee controlling interest, the corporation will not be an absentee corporation and therefore will not be liable to pay the absentee owner land tax surcharge. However, the exemption will not apply to a corporation that is incorporated outside Australia.
  • Under section 3BA of the land Tax Act, if an exemption has been granted for all of the absentee beneficiaries in relation to an absentee trust, the trust will not be an absentee trust. Therefore, the trustee of the trust will not be liable to pay the absentee owner land tax surcharge.
  • Under section 3E of the Duties Act, a person who has an exemption is taken not to have a controlling interest in the corporation or a substantial interest in the trust estate. The effect of this exemption is that the corporation or trust will not be a foreign corporation or foreign trust, and therefore will not be liable for the foreign purchaser additional duty. However, all other duties that are liable to be paid will remain payable, and the exemption will not apply to a corporation that is incorporated outside Australia.

When determining whether an exemption should be granted in relation to an absentee corporation under section 3B of the Land Tax Act, the following factors will be considered:

  • The nature and degree of ownership and control. For example, the greater the degree of ownership or control the absentee person has, or absentee persons have, in the corporation, the greater this factor will weigh against the grant of the exemption.
  • Practical influence to determine the outcome of decisions of the corporation. For example, the greater the absentee person’s role in the management and operation of the corporation’s activities, the greater this factor will weigh against granting the exemption.
  • The effect of the practice or behaviour of the absentee person on the financial and operating decisions of the corporation. For example, the greater the frequency and the impact of the absentee person’s involvement in determining the corporation’s financial and operating policies, the greater this factor will weigh against granting the exemption.

An absentee corporation is also less likely to be granted an exemption if it does not have any management staff based in Australia.

When determining whether an exemption should be granted in relation to an absentee trust under section 3BA of the Land Tax Act, the following factors should be considered:

  • The nature and degree of the absentee beneficiary’s interest in the trust. For example, the greater the degree of interest the absentee beneficiary has, or the absentee beneficiaries have, in the trust, the greater this factor will weigh against granting the exemption.
  • For a discretionary trust, the frequency or proportion of distributions made to the absentee beneficiary and the relationship between the absentee beneficiary and the trustee.
  • Practical influence that the absentee beneficiary can exert, and the rights the absentee beneficiary can enforce to determine or influence the outcome of the decisions about the trustee’s administration of the trust.
  • The practice or behaviour of the absentee beneficiary affecting the trustee’s administration and conduct of the trust.

Among other things, the guidelines also note that where the commercial activities of the corporation or trust make a significant contribution to the Victorian economy and community (by engaging local labour and utilising local materials and services), this will weigh in favour of granting the exemption.

When determining whether an exemption should be granted in relation to foreign corporations under section 3E of the Duties Act, the following factors should be considered:

  • The nature and degree of ownership and control the foreign person has in the corporation. For example, the greater the degree of ownership or control the foreign person has in the corporation, the greater this factor will weigh against granting the exemption.
  • Practical influence the foreign person can exert and the rights the foreign person can enforce to determine, directly or indirectly, the outcome of decisions about the corporation’s financial and operating policies.
  • The practice or behaviour of the foreign person affecting the corporation’s financial and operating policies.

When determining whether an exemption should be granted in relation to foreign trusts under section 3E of the Duties Act, the following factors should be considered:

  • The nature and degree of the person’s beneficial interest in the capital of the trust estate. For example, the greater the degree of beneficial interest the foreign person has in the trust estate, the greater this factor will weigh against granting the exemption.
  • In respect of a discretionary trust:
    • where the principal or primary beneficiary of the trust is a foreign person, this factor will weigh more heavily against granting the exemption;
    • where a trust is a foreign trust because the class of general beneficiaries includes a foreign person, who has never received any distributions from the trust and is unlikely to receive any distribution, this factor will weigh in favour of granting the exemption; and
    • the closer the relationship between the foreign beneficiary and the trustee or the appointer of the trust, the greater this factor will weigh against granting the exemption.
  • Practical influence that the foreign person can exert and the rights the foreign person can enforce to determine, directly or indirectly, the outcome of decisions about the trustee’s administration and conduct of the trust.
  • The practice or behaviour of the foreign person affecting the trustee’s administration and conduct of the trust.

Among other things, the guidelines also note that where the commercial activities of the corporation or trust significantly add to the supply of housing stock in Victoria (either through new developments or through redevelopment, where such development is primarily residential) this will weigh in favour of granting the exemption.