Is a new land tax bill coming for your vacant property?

You are currently viewing Is a new land tax bill coming for your vacant property?

You may have seen recent news coverage of changes to Victoria’s Vacant Residential Land Tax (VRLT).

Owners of vacant Victorian property, including holiday homes, need to pay attention to these changes.

What is Vacant Residential Land Tax (VRLT)?

VRLT is an additional land tax applied to land that is deemed to be ‘vacant’. VRLT previously applied to property held in limited council areas in inner Melbourne. It will now apply to all land in Victoria.

Generally, land will be ‘vacant’ where it is unoccupied for 6 months in the previous year.

How much do I have to pay?

VRLT is calculated on a sliding scale. If a property is vacant for one year, tax of 1% of the Capital Improved Value of the land will apply. If the property is vacant for 2 years, the rate is 2%. If the property is vacant for 3 or more years, the rate is 3%.

Keep in mind that this rate is calculated against the Capital improved Value, not the unimproved value as with standard land tax. This means that the VRLT rate is even more onerous.

When does this start?

VRLT will apply from 1 January 2025, but that calculation will be based on the property’s usage during the previous year. In other words, VRLT will be calculated on how you use the property this year.

Vacant Residential Blocks in Melbourne

From 1 January 2026, VRLT will also apply to unimproved residential land in Melbourne that could be developed but has remained undeveloped for 5 years.

New Residential Properties

A VRLT exemption for new-build residential properties allows a maximum exemption of three years provided the owner has made genuine attempts to sell the land. If the property remains unoccupied and unsold after this time, the exemption will no longer apply.

Holiday Homes

There is a holiday home exemption (limited to a maximum of one home) where an owner or their relatives use the holiday home for at least 4 weeks (continuously or in aggregate). However, there are several important caveats to keep in mind.

Firstly, the exemption requires that the holiday home’s owner has their principal place of residence somewhere in Australia. This means that owners that do not live in Australia will not qualify for the exemption.

Secondly, holiday homes held in companies or most trusts are not eligible for the exemption.

Thirdly, the Commissioner must be satisfied that the land is actually used as a holiday home. This raises a question as to what happens where a property is vacant for six months, used by the owner for 1 month but then listed for short-term rentals for 2 or 3 months. The position at the moment is not clear.

Enforcement and Evidence

The State Revenue Office (SRO) is increasingly using data-matching tools as an enforcement strategy. Where the SRO can see that electricity and water are not being used, that property is more likely to be investigated.

Owners of holiday homes should look to compile evidence of their usage. Although water and power bills will be useful, a logbook may also be a good idea. Retaining receipts from nearby businesses such as supermarkets and cafes could also be useful.

What should I do?

It may not always be practical to ensure that a property is used for 6 months, however there are some other basic steps you can take.

For holiday homes, you should ensure that the property is used for at least four weeks, and there is evidence to support that.

For property held in a trust or company, it may be wise to consider transferring that property before 31 December.

Alternatively, if there is no effective strategy available and the tax is unsupportable, you may need to consider selling the property before the end of the year.

Aintree Group Legal will be happy to discuss this matter with you. Contact us today.