Since 1 January 2018 a vacant residential land (VRL) tax has applied to residential property, which is located in specified areas of Melbourne, pursuant to changes to the Land Tax Act 2005 (Vic). This new tax is being imposed as a measure towards encouraging land owners to make residential properties available for purchase or rent to more efficiently use Melbourne's current housing stock. The VRL tax applies to a residential property that is vacant for more than six months in the preceding calendar year. Since the tax is assessed by reference to calendar year, the six month vacancy period does not need to be continuous.

For the 2018 calendar year only, homes will be considered to have been occupied up to 30 April 2017. For the period May-December 2017, residential properties must have been occupied for another two months to avoid liability for the VRL tax in the 2018 calendar year.

The VRL tax is entirely separate from the Federal Foreign Annual Vacancy Fee which only applies to foreign owners of Australian residential property (see final paragraph below).

What areas of Melbourne are included?
For residential properties unoccupied for more than six months to become liable for payment of the VRL tax, they must be located in one of the following sixteen municipal council areas:

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

What is the rate of VRL tax?
This annual tax is payable at the rate of 1% of the capital improved value (CIV) of the residential property. For example, a residential property with a CIV of $750,000.00 would have an annual tax liability of $7,500.00. The CIV is determined every second year by the general valuation process. It is shown on an owner's council rates notice. The CIV is the expected market value of land and buildings if offered for sale at the valuation date.

What is a residential property?
Residential properties to which the VRL tax applies are buildings that are to be used solely or primarily for residential purposes, like a home or an apartment. A residential property will be considered vacant if not lived in by either the owner or a person under a lease made in good faith as their principal place of residence. Land on which a home or apartment is being constructed or renovated will be considered vacant if, on 31 December of the preceding year, more than two years has elapsed since the date on which the building permit allowing the construction or renovation works was issued.

Are there exemptions to the VRL tax?
Vacant land on which there are no buildings is not residential land. The VRL tax does not apply to commercial residential premises, residential care facilities, supported residential services and retirement villages.

A residential property which is exempt from standard land tax because it has qualified as the landowner's Principal Place of Residence and continues to be the Principal Place of Residence will also be exempt from the VRL tax. But this exemption ends if the residential property ceases to be the landowner's Principal Place of Residence.

Residential properties unoccupied for more than six months in the preceding calendar year, and to which the VRL tax otherwise applies, can be exempt from the tax if any one of following circumstances is applicable:

  • ownership of the property changed during that calendar yearthe property becomes residential during that year
  • the property is used as a holiday home (a second home) and was occupied by the owner for at least 4 weeks in that year and the owner has another property in Australia which is the principal place of residence
  • the property was occupied by the owner for at least 140 days in that year for the purpose of attending their workplace which must also be located in one of the sixteen specified municipal areas and the owner has another property in Australia which is their principal place of residence.

A mortgagee who has taken possession of a residential property is not liable to pay the VRL tax.

Compulsory self-notification requirements for 2018
If you own a residential property that was unoccupied for more than six months during the period May-December 2017, and it is located within one of the sixteen specified municipal council areas, you must notify the SRO through their online portal by no later than today, due to the self-assessment obligation the onus is on owners to decide whether their residential property is subject to the VRL tax and the notification requirement.

Federal foreign annual vacancy fee
This fee applies only to foreign owners of residential property where it is neither occupied nor genuinely available on the rental market for at least six months in a twelve month period.

This vacancy fee only applies to foreign persons who made a FIRB application after 9 May 2017. The amount of the vacancy fee will be equivalent to the FIRB application fee payable for the purchase approval.

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.