In 2023 the Legal Practitioners’ Liability Committee published an article highlighting important changes in Victorian Property Tax.
Since then we have received many enquiries about the Vacant Residential Land Tax (VRLT) which was also discussed in that article. To assist practitioners we have below provided short answers to some of the more common questions we have received.
What's on this page?
How does VRLT interact with 'standard' land tax and what are the notification obligations?
Importantly, where applicable:
- the VRLT is imposed in addition to standard land tax and
- the value upon which VRLT is imposed (i.e. capital improved value or 'CIV') can often be significantly higher than the value upon which standard land tax is imposed (being 'site value', which ignores any improvements to the land).
Affected land owners are required to notify the Commissioner of State Revenue of any vacant residential land owned by 15 January of the relevant land tax year. For example, if residential land is 'vacant' (as explained further below) in the 2024 calendar year, a notification for the purposes of the 2025 land tax year must be made by 15 January 2025.
The State Revenue Ofiice (SRO) states that an affected land owner is required to notify the SRO by using its online portal.
Failure to lodge a notification on time will generally result in penalties being imposed in accordance with the Taxation Administration Act 1997 (Vic).
What VRLT changes are relevant for 2024?
Where land is both 'vacant' and 'residential' for the purposes of the Land Tax Act 2005 (Vic) during the 2024 calendar year, 2025 VRLT will generally apply in respect of the land regardless of where it is located in Victoria.
Accordingly, the vacancy of residential land from 1 January 2024 is relevant for the purposes of the VRLT regime regardless of its location in Victoria.
This represents a critical change from the regime applicable for the 2024 and prior land tax years. For example, 2024 VRLT (which has regard to the nature and use of land in the 2023 calendar year) can only apply in respect of vacant residential land in specified council areas located across the inner-city and middle ring suburbs of Melbourne.
It should also be noted that a separate tranche of amendments to the VRLT regime has been passed and will take effect for the purposes of the 2026 VRLT year onwards. In particular, the definition of 'residential land' will be extended to include certain land in metropolitan Melbourne where development has not commenced (and the land has been vacant for at least 5 years in the same ownership). If potentially relevant to your client, expert advice should be sought in relation to this separate significant change.
What does ‘vacant’ mean?
Land will be considered 'vacant' for the purposes of a land tax year (i.e. a calendar year) if it has not been 'used and occupied' in the immediately preceding calendar year for a period of more than 6 months (whether continuously or in aggregate) by:
- the owner of the residential land, as the principal place of residence of the owner or
- the owner's permitted occupant, as the principal place of residence of the occupant or
- a natural person under a lease or short-term letting arrangement, provided that the arrangement is not made for the purpose of avoiding the payment of the VRLT.
Land on which a residence is being constructed or renovated will, in certain circumstances, be considered 'vacant' for the purposes of a land tax year if, on 31 December of the immediately preceding year, more than two years has elapsed since the construction or renovation commenced (noting that construction or renovation is deemed to commence on the date of issue of the relevant building permit).
Do the 6 months of occupation need to be continuous?
No. Provided that the land was occupied for an aggregate period of more than 6 months in the preceding calendar year, the VRLT does not apply for the subsequent land tax year.
Where VRLT applies, what is the tax rate?
Where VRLT is payable in respect of a first year of 'vacancy', it will be imposed at a rate of 1% of the land's CIV.
An important recent legislative change provides for an increase in the applicable rate of VRLT if a property is vacant for more than 1 consecutive year (applicable rates are: 1% for the first year, 2% for the second year and 3% for the third and any subsequent years).
Do any exemptions apply?
Yes, there are a limited range of exemptions that may be available, such as for holiday homes and new residential premises. As always, qualifying criteria for exemptions must be reviewed in detail.
The holiday home exemption may be available if land is used and occupied by the owner or a vested beneficiary of a trust as their holiday home for at least four weeks in the preceding calendar year.
However, a significant limitation of the current holiday home exemption is that land held in a company or discretionary trust is not eligible. The Government has indicated that it will seek to pass legislation in 2024 to provide relief in respect of holiday homes that are already held in such structures, however as at the time of writing the relevant draft legislation is yet to be introduced into the Victorian Parliament.
LPLC will bring you more information when further legislative details are announced in 2024.
