Owners of vacant properties outside of inner/middle Melbourne ought to know of an expansion to the Vacant Residential Land Tax ("VRLT") starting from 1 January 2025. Starting next year, properties which are left unoccupied for more than 6 months for the preceding year in which the VRLT applies to, must notify the State Revenue Office of this vacancy and any applicable exemption by 15 January 2025 through their online portal.
This now applies to all properties in Victoria, regardless of whether they are in inner/middle Melbourne.
What is the VRLT?
As a refresher, VRLT is a tax upon the Capital Improved Value ('CIV') of a residential property which starts at 1% of the CIV of the property and increases sequentially to up to 3% over subsequent years.
Example 1
Your property in Ocean Grove was owned, not as your principal residence, in 2024, and was assessed for VRLT of 1% of the CIV which was $1,000,000. Due to this, you will be subject to a $10,000 VRLT and land tax of $4,650 for 2025 unless you occupied it for more than 6 months or for more than four weeks as a holiday home by yourself and/or relative and make application for VRLT exemption.
If the property is still vacant for more than 6 months in 2025 and 2026, the VRLT will increase to 2% and 3% for those years respectively. In 2026 and 2027, you will be subject to VRLT of $20,000 and $30,000, respectively, unless an exception applies.
What is the Change to the VRLT?
From 1 January 2018 to 31 December 2024, the VRLT only applied to residential properties in inner and middle Melbourne that was vacant for more than 6 months in the preceding year. However starting from 1 January 2025, all properties in Victoria, regardless of whether they are located in inner/middle Melbourne, or not, will be subject to VRLT.
Notification Requirement
Importantly, given the deadline is coming up soon, if you believe that your residential property is subject to VRLT, you will need to notify the SRO by 15 January 2025 if you own land in Victoria and that land is vacant for more than 6 months. You can do so through the SRO's online portal.
A failure to notify the SRO by the deadline will be considered a notification default and you may be subject to penalty tax of:
- 5% if you notify the SRO prior to an investigation taking place;
- 20% if you tell the SRO during an investigation; or
- 90% if the SRO believes that you have intentionally disregarded the law and hindered their investigation.
Exemptions
Holiday Home Exemption
Owners or vested beneficiaries of trusts that own the home may qualify for VRLT exemption if they occupied the home for at least 4 weeks in a calendar year and they have a principal place of residence in Australia.
Example 2
Mark lives in the US and owns a holiday home in Mildura. In 2024, he used the holiday home for 5 weeks. In 2025, Mark will be subject to VRLT given that his principal place of residence is in the US.
Nathan has lived in Brisbane for several years and owns a holiday home in Altona. He uses this holiday home for 9 weeks of the 2024 year. Nathan will not be subject to VRLT in 2025 as he is a resident of Australia and has used the home for more than 4 weeks in the 2024 year.
Whether the exemption applies is up to the discretion of the Commissioner of State Revenue. As such, the Commissioner will have regard to:
- The location of the land;
- The distance between the location of the land and the owner's or vested beneficiary's principal place of residence; and
- The nature and frequency of the use of the land.
A notable change to this exception is that from 1 January 2025, a relative of the owner or a relative of the vested beneficiary can satisfy the 4 week use and occupation requirements. Further, from 1 January 2025, companies or trustees of a trust will be eligible for the holiday home exception provided they have owned the home since 28 November 2023, there have been no changes in beneficial ownership of the land since November 2023 and a natural person has used the property as their PPR in the preceding tax year and occupied it for 4 weeks.
Change of Ownership
A property subject to VRLT may qualify for the change of ownership exemption for the current calendar year provided that the property has changed ownership in the preceding year.
Example 3
Anne owns a home in Bendigo which she purchased in 2023. She has not occupied the home at all. Anne will not be subject to VRLT in 2024 as the home had changed ownership in 2023.
The Property becomes Residential Land
There are two notable sub-exemptions worth discussing here. First, land that becomes residential land for a calendar year will not be subject to VRLT in the subsequent year.
Additionally, where land has become residential land and the land has not been used or occupied and the ownership of the land remains unchanged, VRLT will not apply for up to 2 tax years following the change to residential land.
Work Accommodation Exception
This exemption applies to owners of land or vested beneficiaries of trusts to which the land is subject provided they:
- have a PPR in Australia;
- used and occupied the land for the purpose of attending their
place of business or employment and that place is within a
specified council area which includes;
- Banyule, Melbourne, Bayside, Monash, Boroondara, Moonee Valley, Darebin, Merri-bek, Glen Eira, Port Phillip, Hobsons Bay, Stonnington, Manningham, Whitehorse, Maribyrnong and Yarra;
- used and occupied the land for at least 140 days.
Example 4
Jason lives in Geelong but he is required to work 4 days a week in Maribyrnong. Jason owns a home in Maribyrnong which he uses while working there and used it for more than 140 days a year. Due to this, his home in Maribyrnong is not subject to VRLT in the subsequent year.
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.
