Lawyers say new Airbnb tax could be unconstitutional

A legal challenge to Victoria’s controversial Airbnb taxcould blow a $60m hole in the state budget, with high level legal advice indicating the new tax could be unlawful.

A legal challenge to Victoria’s controversial new “Airbnb” tax could blow a $60m hole in the state budget and hamper the Allan government’s efforts to address the state’s housing crisis.

High level legal advice circulating among tourism operators has flagged the new tax, which is due to be debated in parliament next week, could be unconstitutional.

Senior tax lawyers have been reviewing the Short Stay Levy Bill 2024 in recent days with a potential High Court challenge understood to be in consideration.

Last year the government was forced to scrap its new tax on zero and lower emission vehicles after the High Court ruled it unlawful, saying only the Federal Government had the power to establish such an excise.

A challenge to the proposed short stay tax, which would legislate a 7.5 per cent tax on short stay bookings, would focus on the ability of the state government to tax short stay bookings.

Lawyers say the Airbnb tax could be unconstitutional.

“By imposing a levy on the accommodation booking, as opposed to the stay, the Bill may give rise to constitutional issues, as it is not taxing property but the service of booking the property,” legal advice has warned.

“Whilst there is no issue with a State government imposing tax on property in Victoria, there may be issues with imposing tax on bookings.

“There is an argument that the Victorian Government is introducing a state services tax, applied to accommodation booking, which is essentially doubling up the existing Goods And Services Tax (GST)”

The advice argues that the government can’t impose such a tax because of an agreement to abolish state based accommodation taxes when GST was introduced in 2000.

Shadow treasurer Brad Rowswell has previously written to federal treasurer Jim Chalmers urging him to intervene in the matter.

He said if the short stay tax were to be introduced it would constitute a clear breach of the agreement between the state and federal government that could set a dangerous precedent.

The tax could be subjected to a High Court challenge.

“Victorian Labor are so desperate to feed their debt beast that they are more interested in ripping money from Victorian holiday makers, tourism operators and communities than acknowledging that their holiday and tourism tax could be subjected to High Court challenge,” he said.

“I would have thought that Premier Allan and Treasurer Pallas would have learnt a lesson after the embarrassment of having to pay back the illegally collected electric vehicle tax – but they clearly haven’t.

“As a matter of urgency and fairness for Victorians that are about to be slapped with Labor’s 55th new or increased tax; the government must release their legal advice on this matter today before the matter is debated in parliament.”

The new tax is set to apply to all bookings made from January 1 in a move the government hopes will encourage investors to return properties to the long-term rental market.

The new tax is set to apply for all bookings made by January 1.

But Mr Rowswell said the charge would simply add to the burden of property owners who were already facing the highest property taxes in the nation.

“These taxes are driving away the investment needed to get more homes built. Labor’s holiday and tourism tax will do nothing to address the fundamental causes of Victoria’s housing affordability and availability crisis.”

The government expects to raise an estimated $60m a year through the new tax, but has not yet released any modelling on how many homes it expects to see transferred to long term rentals.

Victorian Tourism Industry Council chief Felicia Mariani said accommodation providers were concerned about their ability to comply with the new tax.

In Western Australia owners of short-term rental properties can qualify for a $10,000 incentive payment to transfer their property to the long-term rental market for at least 12 months.

Already about 200 people have registered interest in the scheme.

Under the Victorian proposal, councils will remain free to impose charges on short stay properties, despite an original commitment that the tax would replace any local government fees.

The Allan government has faced a fierce backlash over the proposed tax, with Airbnb actively campaigning against the move and accusing the government of triple-taxing holiday-makers.

A government spokesperson said: “there are no constitutional issues with the short stay levy”.