As charitable institutions, universities in Victoria can claim an exemption from land tax. The limits of this exemption were tested in February 2021, when a dispute came before the Victorian Supreme Court. The dispute related to whether land leased by the University of Melbourne (University) to a third party student accommodation operator (Operator) and café satisfied this exemption.

Here we summarise this decision and the impact it may have on universities and tenants in other States.

The decision

A dispute arose between the University and the Commissioner of State Revenue, after a Tax Assessment Notice was issued for the parcel of land leased to the Operator for the purposes of providing student accommodation. The Land Tax Act 2005 (Vic) (LT Act) provides a land tax exemption 'if [the land] is used by a charitable institution exclusively for charitable purposes'. The decision turned on the interpretation of the terms 'used' and 'exclusively', as the Commissioner contended that the land was not used by the university exclusively for charitable purposes, as it was used by the Operator to operate a commercial student accommodation facility.

Osborne J held that 'use' in this context should be afforded a broad interpretation. The meaning of 'use' extended beyond active physical use, so that land leased by a university (or other charitable entity) to a private entity can still be land 'used by a charitable institution' for the purposes of the LT Act. This is consistent with the High Court decision in Ryde Municipal Council v Macquarie University (1978) 138 CLR 633.

Osborne J considered the word 'exclusively' as pertaining to the University's (charitable) purposes to enhance student education. It was not, as the Commissioner contended, requiring that the use of the land be undertaken exclusively by the University.

Maintaining an element of control

To determine whether the University 'used' the land, it was relevant in the decision that the University retained contractual rights to monitor the Operator's use of the facilities and its ancillary services. Osborne J considered that these rights extended beyond what is typically seen in purely commercial lease arrangements.

Some of these controls included that:

• an agreement entered into with the Operator set out the University's objectives, which included facilitating student residential living;
• a number of support services had to be provided to residents;
• the Operator was to prioritise the allocation of accommodation first to students of the University, secondly to visiting staff or invitees of the University, and thirdly to students of other institutions; and
• the University maintained oversight of fees charged to residents.

This highlights that universities should consider the extent to which it has maintained contractual control over the use of the land it has leased to private parties to achieve the objectives of the university.

Portion of the land used for a café

Part of the affected land was subleased to an operator of a café, which was also exempt from land tax, as it was ancillary and incidental to the main charitable purpose of providing student accommodation.

Evidence was given that the café operator was chosen specifically in order to enhance the student living experience by providing residents with wholesome food at reasonable prices, and that the café space constitutes a common area for residents.

Impact on other states We have summarised the different treatment of university land tax concessions in our State-by-State Comparison Table [HYPERLINK TO PDF DOWNLOAD].

If you would like further information or advice on the above matter, please reach out to your client relationship partner or a member of our team.