Overview
Landowners are generally liable to land tax where the total unimproved value of their landholdings exceeds the prescribed land tax threshold in a particular Australian jurisdiction.
However, land may be exempt from land tax if the relevant land is used for certain purposes, the most notable being land used as the owner’s principal place of residence.
Things are far less clear cut though where a land tax exemption seeking to be relied upon involves land owned by or leased to a charitable organisation.
Where the owner of the land is a charitable organisation or alternatively, where the land is leased to a charitable organisation, the land may be exempt from land tax if it is used exclusively for charitable purposes.
We stress the word may as the particular nuances of the exempting provision in the relevant jurisdiction’s land tax legislation must be considered.
In the May 2021 TaxEd Update we looked at a case involving land tax exemption in Victorian where a University leased land for use as student accommodation – land tax exemption was held to apply.
So just as we thought the picture was becoming clearer, a recent case dealing with Australian Capital Territory land tax and involving a ‘similar’ exemption provision produced a different answer – the land was taxable!. The case is another reminder that for land tax exemption to apply, it is not sufficient that the land is owned, or leased to a charitable organisation, the use to which the land is put must must be considered against the specifics of the legislative exemption in that jurisdiction.
Facts
The taxpayer in Illawarra Retirement Trust ACN 000 726 536 v Commissioner For ACT Revenue (Administrative Review) [2021] ACAT 56 (25 June 2021) (Illaware Retirement case) is registered as a benevolent institution and charitable organisation. The taxpayer operates a number of retirement villages and residential aged care facilities nationally. In the Australian Capital Territory, the taxpayer operates a co-located retirement village and aged care facility, as well as a catering business which services most of its facilities as well as some third-party aged care providers.
On 20 March 2018, the taxpayer executed a contract to purchase a block of land from a developer in a suburb in Canberra. On 8 November 2018 the ACT Planning and Land Authority granted a Crown lease over the subject land to the developer, which was transferred to the taxpayer at settlement on 17 December 2018. The taxpayer intended to develop the land for purposes of residential care accommodation and retirement village with an integrated commercial/community space development. The commercial spaces would likely include a child care centre and where possible, services that would fulfil and enhance community amenity, for example a cafe, hairdresser and convenience store etc. After the acquisition of the land, the taxpayer was issued two land tax assessments for that parcel of land, one for the period 8 November 2018 to 30 June 2019 and the other for the 2019-20 year. The taxpayer objected but the objection was disallowed, then sought a review of the objection decision.
The basis of objection was that section 8(1)(b)(iii) of the Rates Act applied. It is as follows:
rateable land—
(a) means all land in the ACT, including Commonwealth land; but
(b) does not include—
…
(iii) land leased to charitable organisations and used exclusively for religious, educational, benevolent or charitable purposes…
The Decision
The Tribunal confirmed the decision under review. In reaching the decision, the Tribunal referred to a number of authorities which provide amongst other things that:
If the use which the charity makes of the land is “wholly ancillary to”, or “directly facilitates”, the carrying out of its charitable objects, that is sufficient to satisfy the requirements that the premises are used for charitable purposes:
If, on the other hand, the use is only “collateral” or “additional” to the purposes which give the charity its character as such, the land will not be used for the purposes of the charity
The Tribunal was not satisfied that during the relevant rating periods (i.e., 8 November 208 to 30 June 2019; and 1 July 2019 to 30 June 2020), the taxpayer was using the land in compliance with section 8(1)(b)(iii). From the time that the taxpayer acquired the land, it was engaged in developing the land into the state for which it was zoned and acquired. That process commenced with a planning phase and involved use of the land. Of the taxpayer’s planning activities, those relating to the provision of commercial facilities (e.g., café, beautician, physiotherapist, hairdresser and convenience store etc.) were found to have a high degree of integration with the taxpayer’s core object – those facilities increase the opportunities for interaction with the community for the residents, the facilities are expected by potential clients of the taxpayer, and where operated by third-parties, it increases the likelihood of commercial viability, which benefits all parties. However such a connection cannot be seen in the case of the child care proposal, the residents of the complex would derive no direct benefit from the existence of the child care centre in the way for example staff and students of Universities are able to derive such a benefit. The planning activity to incorporate the child care centre into the development was the only finding that was necessary for the Tribunal to reach the conclusion that the land was not being used exclusively for charitable purposes because of the exclusivity requirements of section 8(1)(b)(iii).
Where to from here…
Land tax assessment is made on the basis of the circumstances existing during the relevant rateable period(s) and the amount of liability to assessment can change from time to time. The Illawarra Retirement case highlights the importance of carefully considering the wording of the relevant land tax exemptions and ensuring all uses of the relevant land conform and continue to advance a charitable organisation’s purposes.
A slightly more difficult issue though is how to reconcile the decision in the Illawarra Retirment case with the University of Melbourne case discussed in the May 2021 Tax Ed Update. It could be argued the same issue was required to be determined in each case but a different decision was reached.