The Victorian Treasurer has published revised guidelines (Revised Guidelines) that set out the factors that may be considered in determining whether an entity should be granted an exemption from the Absentee Owner Surcharge (AOS) for the 2019 land tax year onwards.


From 1 January 2016, entities owning land situated in Victoria that have foreign owners or beneficiaries are subject to an AOS in addition to land tax payable at general rates based on their taxable land value. The AOS rate was original 0.5% above the applicable general land tax rate, and increased to at 1.5% from the 2017 land tax year onwards. An overview of the AOS and circumstances in which the AOS is levied are detailed in our earlier Riposte.

The Victorian Treasurer has the ability, under sections 3B and 3BA of the Land Tax Act 2005 (Vic), to exempt an absentee corporation or absentee trust from being subject to the AOS if certain criteria are met (Exemption Criteria).

Broadly, the Revised Guidelines published on 1 October 2018 remain relatively unchanged from the previous guidelines published on 5 January 2018. The main change to the Revised Guidelines relates to the circumstances in which a landowner will be considered to “make a significant contribution to the Victorian economy and community”.

Contribution to the Victorian economy and community

Passive or Active Ownership?

The Revised Guidelines demonstrate that active spenders and employers in Victoria are the intended recipients of the AOS exemption. If the activities of the corporation or trust are passive in nature and are ‘connected with the ownership, sale or purchase of land’ then the Revised Guidelines indicate that an exemption from the AOS is unlikely to be available. The Revised Guidelines specifically state that entities essentially deriving income as landlords or property investors are not the intended recipients of the AOS exemption.

Development phase

The Revised Guidelines contain a concession for property owners for years in which activities to develop and construct a property are being undertaken. Specifically, during the construction and development phases, landowning entities subject to the AOS may be considered to be making a significant contribution to the Victorian economy and community, and may be eligible for the AOS exemption in those years.

Obtaining the AOS exemption may require the landowner to provide evidence that that the size of the commercial activities (i.e. the spend) is significant relative to the value of the entity’s landholdings. This particular change in the Revised Guidelines is consistent with our experience of the way that the Victorian State Revenue Office has administered the AOS exemption to-date.

Grouping of entities

Interestingly, the Revised Guidelines clarify that for the purposes of assessing the contribution of a landowning corporation or trust to the Victorian economy, the commercial activities of entities that are 100% owned by the same parent entity of the landowner may be taken into account if that related entity conducts a significant commercial operation on or from the relevant Victorian land. Consider the following example:

  • P Corp, a parent company with foreign investors, has 100% interest in A Corp and B Corp (both Australian resident companies);
  • A Corp is a land holding entity which derives passive rental income from a lease to B Corp, and
  • B Corp is an entity conducting a significant business on land leased from A Corp.

In the above example, A Corp’s eligibility of the AOS exemption with respect to the Victorian land will be influenced by B Corp’s contribution to the Victorian economy and community in the relevant land tax year.

Key takeaways

The Revised Guidelines clarify that passive property developers and investors are, in most circumstances, not intended to be able to access the AOS exemption once the asset becomes income generating. However, the AOS exemption may be available during the construction phase while development activities are being undertaken on the Victorian land.