Victorian Vacant Residential Land Tax (“VRLT”)
These changes will take effect from 1 January 2025 and 1 January 2026.
The use of the residential land during the 2024 calendar year may impact landowners.
The vacant residential land tax assessments for 2025 will be based on usage from 1 January 2024 to 31 December 2025, it is critical that landowners are across the changes now.
Current VRLT position
The VRLT first took effect from 1 January 2018.
Currently, this annual tax is set at 1% of the capital improved value ("CIV") of taxable land (i.e. the value used for rating purposes) and only applies to properties in 16 inner and middle Melbourne councils that were vacant for more than 6 months in the preceding calendar year.
Under the current rules, holiday homes and homes being renovated are exempt.
Changes to VRLT effective 1 January 2025
The significant changes to VRLT takes effect in stages from 1 January 2025 and 1 January 2026, together with fundamental changes to the legislation, as outlined below:
Fundamental changes & criteria for application
The first criteria for land to be subject to the VRLT is that the land must be taxable land.
Taxable land is land that is not ‘exempt land,’ exempt land includes:
- Principal place of residence (PPR); or
- Primary production land.
The second criteria for land to be subject to the VRLT is that the land must be residential which is land that is capable of being used solely or primarily for residential purposes. Typically, this entails a dwelling suitable for use and occupation.
The third criteria is that land must be vacant.
Changes from 1 January 2025
The VRLT will be expanded to apply to all residential land across all of Victoria, including regional areas.
The VRLT payable increases for subsequent years where the land continues to meet the criteria.
- First year — 1% CIV
- Second consecutive year — 2% CIV
- Third consecutive year — 3% CIV
Landowners must be careful due to the accelerating rates – otherwise they may find themselves with unexpectedly high vacant residential land tax bills.
If the land is subject to the VRLT for consecutive years, the VRLT liability increases. The below table is an example the VRLT application.
Summary of VRLT based on property values assuming vacant over a 3 year period:
| Property value - CIV |
| $1,000,000 | $3,000,000 | $5,000,000 |
|
| Tax rate |
|
|
|
| Year 1 | 1% | 10,000 | 30,000 | 50,000 |
| Year 2 | 2% | 20,000 | 60,000 | 100,000 |
| Year 3 | 3% | 30,000 | 90,000 | 150,000 |
| Total VRLT – over 3 years |
| $60,000 | $180,000 | $300,000 |
Liability for the VRLT is self-assessment. Accordingly, property owners are expected to inform the Victorian State Revenue Office when it applies. The SRO will also undertake monitoring and compliance activities.
The holiday home
One of the biggest impact of this change, will be on holiday homes.
Whilst the exemption for holiday homes is still available, it is only available to individuals who have another property in Australia that is their principal place of residence. That is, it is not available if the holiday home is held by a company or most types of trusts (including family/discretionary trusts).
For the holiday home exemption to apply:
- the owner uses and occupies the land as a holiday home for more than 4 weeks of the calendar year; and
- the owner of the holiday home uses and occupies other land as their PPR.
Previously, a holiday home was only exempt if it was used by the owner for at least 4 weeks of a year. From 1 January 2025, the holiday home exemption can also apply where a relative of the owner used the property for at least 4 weeks of the year.
Currently, taxable land held in a trust, or a company will not qualify for the holiday home exemption. However, the government announced in November 2023 that it would extend the holiday home exemption to apply to properties owned by a trust or company. This means that the use and occupation requirement to be satisfied will be 4 weeks not 6 months.
Exemption for newly built dwellings
Newly constructed residential premises will be exempt from VRLT for 3 years, provided there have been efforts to sell the land.
Land that becomes residential land during the calendar year is ordinarily not subject to land tax in the following year, therefore, where the construction of new residential premises has been completed, the property will be exempt from VRLT for the following tax year.
Changes from 1 January 2026
Unimproved/undeveloped land is captured.
From 1 January 2026, VRLT will apply to land in metropolitan Melbourne that has remained undeveloped for at least 5 years and is capable of residential development.
It does not apply to land in a non-residential zone or land that is under development for a non- residential use. Land will also be exempt if it is incapable of being used or developed for residential purposes.
An exemption will be applied to vacant land that is “contiguous” to an owner's principal place of residence. The contiguous land must share a boundary or touch the existing principal place of residence. It must also enhance the owner's principal place of residence and be used solely for the private benefit and enjoyment of the owner
This exemption becomes necessary as unimproved land will be brought into the tax.
What happens if a taxpayer fails to notify the State Revenue Office of a property that is vacant?
Failure to comply with VRLT obligations may result in the imposition of penalties.
The standard rate of penalty tax applied is 25% of the additional amount of VRLT. However, this can be reduced to 5% for a voluntary disclosure before an investigation.
Issues to consider
Effected landowners could consider several options if they want to avoid triggering VRLT, including:
- Ensuring affected properties are occupied for at least 6 months of a calendar year - this could include use by them or their family or leasing it to third parties.
- For holiday homes, ensuring they are used by the owner or their relatives for at least 4 weeks in the year.
- For properties held in a trust or company, prior to 31 December 2024, consider transferring the property to an individual who will qualify for the holiday home exemption (after considering the costs of such a transfer including CGT and land transfer (stamp) duty).
- Investigating whether other exemptions apply.
- Selling the property before 31 December 2024.
If a landowner intends to claim an exemption, evidence should be collated to support the position.
Landowners should be aware of the potential for State Revenue Office enforcement or monitoring of property use including under the trial compliance system to be introduced.
If you have any queries in relation to the above, please do not hesitate to contact us.