Australia: Vacant Residential Land Tax in Melbourne – Do you need to notify the Victorian State Revenue Office?

The lack of housing supply in inner and middle Melbourne has become a major issue for residents and the State Government. In response, the Victorian State Government has sought to free up further housing by introducing a new Vacant Residential Land Tax on residential properties that remain vacant for more than 6 months per calendar year (either continuously or on aggregate).

Under the proposed legislation to take effect from 1 January 2018, you may need to notify the State Revenue Office ('SRO') if you own a residential property that has been unoccupied for more than six months in the previous calendar year. If you anticipate that your property will be vacant for more than 6 months, a notification to the SRO needs to be made before the 15 January 2018

The tax will be calculated as 1% of the capital improved value of the residential land, and will apply in addition to any other applicable taxes or surcharges.

Awareness of this new tax is particularly important for:

  • Owners of residential investment properties;
  • Holiday home owners;
  • Owners who plan to renovate or construct on their residential land;
  • Expatriates or those who plan to work interstate;
  • Owners of apartments or houses that are mostly leased via online platforms, such as Air BnB; and
  • Those who plan to travel for more than six months.

When and how will the Vacant Residential Land Tax apply?

The tax will apply to residential properties that are unoccupied for more than six months in a calendar year. Residences need to be occupied by either the owner, permitted occupant, or a tenant.

The tax will be geographically restricted to residential land situated in inner and middle Melbourne. A property may only be subject to the Vacant Residential Land Tax if it is located in the following council areas:

Local Council Areas
Banyule Melbourne Glen Eira Port Phillip
Bayside Monash Hobsons Bay Stonnington
Boroondara Moonee Valley Manningham Whitehorse
Darebin Moreland Maribyrnong Yarra

Although the tax will apply from 1 January 2018, it will examine the occupation of residences in the 2017 calendar year. When examining the occupation of residences during the 2017 year, the SRO will be lenient and presume that all land was 'occupied' during 1st January 2017 to 30th April 2017. However, any period(s) of vacancy after 30th April 2017 will count.

Exemptions from the Vacant Residential Land Tax

If the property is your principal place of residence, then it will ordinarily be tax exempt as the PPR exemption requires 6 months of owner occupation per year.

However, if your principal place of residence is vacant for more than 6 months, then the PPR tax exemption may cease to apply, in which case both ordinary Land Tax and the Vacant Residential Land Tax will apply.

An exception to this is where PPR properties are taken to be occupied at law under the following circumstances:

  • The owner is hospitalised or resides at a residential care facility;
  • The land becomes unfit for occupation.

When travelling for more than 6 months in a calendar year, it may be necessary to apply to the Commissioner for an exemption under section 56 of the Land Tax Act 2005 ('LTA'), by asserting that the absence was only temporary in nature and that you are not claiming a PPR exemption in any other state, territory or country.

Further exemptions from the tax may apply in respect of vacant land that is:

  • Under renovation or construction;
  • Used and occupied as a genuine holiday home;
  • Occupied for 140 days (as opposed to 183 days), for work purposes (ie. some leniency for interstate workers);
  • Transferred to a new owner during the tax year.

Recommended actions:

It is recommended that residential land owners:

  • Notify the SRO if you expect that your residential property will be unoccupied for more than six months in the 2017 calendar year.
    • It is important to do this, as the SRO and city councils are likely to identify vacant land by monitoring the utility use of properties and other investigative methods.
    • It is also advantageous to notify, as the notification process allows owners to apply for an exemption at an early stage.
  • Expatriates, interstate workers, and long-term travellers should ideally lease or have another person occupy the property in their absence.
    • That said, leases or short term letting arrangements will need to be made in good faith, and not for the purpose of avoiding the vacant residential land tax.
    • Also, if you lease your principal place of residence for a period of more than 6 months, you risk losing your principal place of residence land tax exemption under section 56(5) of the LTA. This would result in a much larger tax burden than the 1% Vacant Residential Land Tax surcharge.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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