Victoria’s new working from home bid triggers land tax debate
One state’s bold working from home plan has sparked concerns over possible tax implications for residents, prompting a furious claim from the premier.
A bid by the Victorian government to legislate working from home rights has sparked concerns that residents could be hit with a new tax if the change goes through.
Earlier this month, Premier Jacinta Allan announced the state government’s plan to introduce a new law that would see employees in both the private and public sectors have the legal right to work from home at least two days a week.
However, concerns have now been raised that, if the law passes, more people will be facing land tax bills if they choose to take up the WFH offer.
Victoria’s annual land tax is based on the total taxable value of all the land you own in the state.
While your principal place of residence is usually exempt from this tax, you may be up for a bill if you run a home-based business and meet the definition of “substantial business activity”.
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Some Victorians who work from home are already liable for land tax.
Examples where this would be the case include a self-employed web designer who has one room exclusively set aside for his work, a hairdresser who converts their garage into a salon, or a start-up being run solely from the home.
The State Revenue Office’s (SRO’s) has previously ruled that a worker who works from home from “time to time” but carries out most of their work at another premises was “unlikely” to attract a land tax.
However, on Monday, Barrister Emma Mealy, an expert in state taxes who worked at the SRO, told the Herald Sun there is a chance employees working regularly from home on a permanent basis could be liable for the tax in the future.
“For home office arrangements, the commissioner in the ruling focuses on the extent of the business activity carried on in the home office compared with elsewhere, such as the employer’s offices,” she said.
“The commissioner also seems to take into account whether the home office is also used for private purposes. Using a home office to carry on a business activity to a ‘significant extent’ may be a factor the commissioner takes into account … however, it is unclear what a ‘significant extent’ is.”
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Sue Williamson, tax partner at multinational law firm Dentons, agreed, telling news.com.au that technically there is an “exposure” for those who increase their working from home hours.
“Hopefully the Commissioner will issue guidance as to how he will apply the law to these arrangements,” she said.
“More employees could potentially become liable for land tax because it will mean they are not solely using their homes as exempt principal places of residence.”
When asked at a press conference on Monday about concerns that more Victorians could be caught up in the state’s land tax, Ms Allan branded it “nonsense”.
Despite her strong response, the Premier did not directly answer multiple questions asking whether more Victorians being on the hook for land tax as a result of the WFH proposal could be ruled out.
When asked if the SRO would put a ruling ensuring this would be the case, Ms Allan stated there would be “no tax change”.
“Let’s be clear, working from home is happening right now. It’s been happening for a number of years. This is just a rubbish claim that is being made today. A nonsense claim and it flies in the face of the fact that working from home is working right now,” she said.
When the reporter pointed out that the concerns are not around changes to the land tax law and instead relates to the law as it currently exists, the Premier repeated that “there are no changes to the tax settings”.
Speaking to news.com.au, Ms Williamson said working from home more often will “increase the risk” of satisfying the “substantial business activity” test, which could then lead to a removal of a portion of their land tax principal place of residence exemption.
Reforms introduced at the start of 2024 saw the threshold for when the land tax kicks in drop from properties worth $300,000 to just $50,000.
“These reforms meant that even persons who owned a main residence from which some business was conducted could realistically be liable to land tax, due to the lower threshold,” Ms Williamson said.
However, she noted that if a liability of land tax was established by the SRO for a person working from home, it would still likely only be a “small liability”.
“For example, a person who owned their own $900,000 home, 10 per cent of which was used exclusively for work, would have a property with a land tax ‘taxable value’ of $90,000. Based on the land tax scale, this example person would pay $500 in land tax,” she said.
However, not everyone agrees that this is a risk posed by Victoria’s WFH proposal, with
David Catanese, partner at Hall & Wilcox, telling news.com.au saying he “can’t see that being an outcome”.
“Firstly, there’s been no proposal that employees will be required to work from home,” he said.
“If there were to be a tax event for an employee, whether it’s land tax, another tax, or some other negative outcome, an employee may take that into consideration in deciding whether they would seek to access a right to work from home or not.”
He noted that the guidance from the SRO suggests it would be “extremely unlikely” that there would be additional land tax imposed as a result of enshrining the right to work from home.
“What appears to be absent from the public discourse is a distinction between contractors and people running their own business, as opposed to employees working for another business that has a separate office, but working from home occasionally,” Mr Catanese said, adding that, for the latter group it is “very unlikely” there will be a land tax event.
“While details of the proposed work from home laws aren’t yet available, there hasn’t been any suggestion that they would apply to people running their own business, like contractors or freelancers.”
