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Holiday homes to be hit by Victoria’s vacant residential land tax unless usage documented

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Expansion of the Vacant Residential Land Tax, from 1 January 2025, will start to capture holiday homes outside of inner/middle Melbourne. Therefore, holiday homeowners should consider their vacant residential land tax position.

What is new?

From 1 January 2025, Vacant Residential Land Tax (also known as VRLT) will be extended to the whole of Victoria.

Currently, the Vacant Residential Land Tax only applies to inner-city and middle ring suburbs of Melbourne.

The rate of Vacant Residential Land Tax will also expand from 1 January 2025 to apply a sliding scale depending on how long the property is vacant:

  • 1% for the first year;

  • 2% for the second year; and

  • 3% for the third and later years.

Holiday home exemption extended to allow use by relatives

Given the expansion of Vacant Residential Land Tax to the whole of Victoria, the holiday home exemption will become more important than ever.

At the moment, the exemption only applies to:

  1. Land owned by an individual or by a “vested beneficiary of a trust”;

  2. The owner must use and occupy the property as a holiday home for at least 4 weeks (continuous or aggregate) in a calendar year.

The exemption will be extended from 1 January 2025 to allow use by a relative of the owner of the land or vested beneficiary of a trust.

A “vested beneficiary of a trust” is limited to beneficiaries with a vested beneficial interest in possession of the land (i.e. a bare trust).  This does not extend to beneficiaries of a family or discretionary trust or a unit trust (even when they have a present entitlement for income tax purposes).

Exemption not available for holiday homes in trusts or companies

For holiday homes in companies or trust including family trusts or discretionary trusts – the 4-week exemption does not apply.

Instead, the home must satisfy the stricter 6-month use and occupancy requirement by a permitted occupant of the owner or by a natural person under a lease or short-term letting arrangement.

Satisfying this test could bring into question the principal place of residence exemption for the taxpayer’s main home and would open up both land tax and vacant residential land tax issues.

Action required

Holiday homeowners in Victoria should document the use and occupancy of their properties including use by their relatives and ensure that it is used for at least 4 weeks to satisfy the requirements of the exemption.

A simple logbook showing dates and person using the property may be enough.  This must be compiled each year and should be retained however if required to demonstrate the use of the holiday home.

Bills demonstrating water usage or receipts from nearby shopping purchases may also constitute useful documentary evidence.

Please contact us with any questions or any other State Tax issues.

Phil Broderick
Principal
T +61 3 9611 0163  l M +61 419 512 801  
E pbroderick@sladen.com.au    

Nicholas Clifton
Principal Lawyer
T +61 3 9611 0154 | M +61 401 150 955
E nclifton@sladen.com.au

Meera Pillai
Associate
T +61 3 9611 0179
E mpillai@sladen.com.au

Nicholas Clifton