Victorian state taxes: No charity for charities

Charities in Victoria enjoy valuable exemptions from state taxes, including land tax, stamp duty, and payroll tax. These tax concessions can significantly reduce the financial burden on charitable organisations, freeing up resources for their core mission. However, exemptions do not operate as of right merely because a charity is registered with the Australian Charities and Not-for-profits Commission (ACNC) or other regulatory bodies.

The State Revenue Office (SRO) carefully examines whether an organisation’s governing documents—particularly its constitution or articles of association—demonstrate that its purposes are wholly charitable. Errors, vague drafting, or outdated provisions in governing documents can result in exemptions being denied or revoked, sometimes with costly retrospective reassessments.

Land tax exemptions for charities

Under section 74 of the Land Tax Act 2005 (Vic), land owned by a charitable institution may be exempt from land tax if it is used and occupied exclusively for charitable purposes. The SRO’s assessment extends beyond how the land is used, it also considers the organisation’s governing rules. The constitution must establish that the entity’s dominant purpose is charitable.

Problems commonly arise where constitutions include broad or vague objectives, such as promoting ‘community benefit,’ or where there is a mixture of charitable and non-charitable purposes. Another common issue is the absence of a proper winding up clause that requires assets to be transferred to another registered charity upon dissolution. Without these safeguards, the SRO may conclude that the organisation is not operating exclusively for charitable purposes.

Practical tip: Charities should review and amend their constitutions to ensure they reflect exclusively charitable purposes and include a compliant winding up clause to ensure that the land tax exemption is applied on an annual basis.

Stamp duty exemption for charities

Section 45 of the Duties Act 2000 (Vic) provides an exemption from duty on property transfers to charities in certain circumstances. Eligibility depends on the organisation’s status as a charity and its governing documents.

The SRO will scrutinise:

• incorporation documents to confirm that objects are entirely charitable.
• whether trustees or members cannot receive personal benefits, and
• whether surplus assets on winding up will pass to another charity.

Where a winding up provision permits assets to revert to members, duty exemptions will not be granted.

Practical tip: Prior to undertaking a property transaction, charities should ensure their constitution is clear, up to date, and unambiguous in requiring that assets are applied only for charitable purposes.

Payroll tax exemptions for charities

Wages paid by charities may be exempt from payroll tax under section 48 of the Payroll Tax Act 2007 (Vic), but the exemption applies only where the charity’s whole or dominant purpose is charitable. In determining such purpose, the SRO considers both the organisation’s activities and its governing documents.

Charities have lost exemptions where their constitutions included commercial, sporting, or other non-charitable purposes. Similarly, if activities drift into predominantly revenue-generating operations without strong charitable context, the exemption may be challenged.

Practical tip: Constitutions should be reviewed regularly to ensure that stated purposes reflect exclusively charitable aims, especially if the charity has expanded or diversified its operations.

Why governing documents matter more than ever

With Victoria tightening tax administration and relying increasingly on state tax revenue, exemptions claimed by charities are subject to greater scrutiny. Governing documents are the first point of reference for the SRO when assessing whether an entity is truly charitable. Even where day-to-day activities appear charitable, a constitution with vague or conflicting purposes can undermine an organisation’s entitlement to exemptions.

Recommendations for charities seeking tax exemptions

To safeguard valuable exemptions, charities should:

1. Audit their constitution to ensure all objects are charitable and remove or amend any vague or non-charitable purposes.
2. Review their winding up clause to confirm that surplus assets must pass to another registered charity or deductible gift recipient.
3. Seek advice and, where necessary, obtain private rulings from the SRO for clarity on exemptions.
4. Update governing documents regularly to reflect current activities and legislative developments.

Proper documentation is key

Charities should not assume that tax exemptions will apply automatically merely because they are registered with the ACNC or other regulatory bodies.  Land tax, stamp duty, and payroll tax exemptions are based on the relevant state taxation legislative instruments and depend not just on charitable activities, but also on what an organisation’s constitution stipulates.

A careful review of governing documents—particularly the objects, purposes, and winding up provisions is essential to protect access to state tax exemptions and avoid costly disputes or reassessments.

Contact our taxation team and not for profit experts for advice

If you are a charity looking for tax advice, or looking to clean up your documentation, Macpherson Kelley has specific state tax expertise and lawyers dedicated to serving clients in the NFP space.

Please contact Thomas Abraham and Sarah Johnson for advice.

The information contained in this article is general in nature and cannot be relied on as legal advice nor does it create an engagement. Please contact one of our lawyers listed above for advice about your specific situation.