Changes to the Victorian vacant residential land tax (VRLT) will take effect from 1 January 2025 and 1 January 2026.

As vacant residential land tax assessments for 2025 will be based on usage from 1 January 2024 to 31 December 2025- it is critical that landowners are across the changes now.

Current Position

The vacant residential land tax first took effect from 1 January 2018. 

Currently, this annual tax is set at 1% of the capital improved value (CIV) of taxable land (ie the value used for rating purposes) and only applies to properties in 16 inner and middle Melbourne councils that were vacant for more than six months in the preceding calendar year.  Holiday homes and homes being renovated are exempt.

Liability for the vacant residential land tax is self-reporting, therefore, property owners are expected to inform the State Revenue Office when it applies.  The revenue office will also undertake monitoring and compliance activities.

A raft of significant changes to vacant residential land tax take effect in stages from 1 January 2025 and 1 January 2026.

Changes in 2025

Application expanded to all Victorian land

The vacant residential land tax  will be expanded to apply to all residential land across all of Victoria, including regional areas.

One of the biggest impacts of this proposed change will be on holiday homes.  Whilst the exemption for holiday homes is still available it is only available to individuals who have another property in Australia that is their principal place of residence. That is, it is not available if the holiday home is held by a company or most types of trusts (including family/discretionary trusts).

The revenue office will implement a trial vacant residential land tax compliance system starting with apartment towers in 2024, followed by other properties in the inner and middle suburbs of Melbourne in 2025.

Use by owner’s relatives now qualifies for holiday home exemption

Previously, a holiday home was only exempt if it was used by the owner for at least 4 weeks of a year.  From 1 January 2025, the holiday home exemption can also apply where a relative of the owner used the property for at least 4 weeks of the year.

Exemption for newly built dwellings

Newly constructed residential premises will be exempt from vacant residential land tax for 3 years, provided there have been efforts to sell the land.

Land that becomes residential land during the calendar year is ordinarily not subject to land tax in the following year, therefore, where the construction of new residential premises has been completed, the property will be exempt from vacant residential land tax for the following tax year.

Progressive rate introduced

A progressive rate of vacant residential land tax will apply to non-exempt vacant residential land.

The tax rate will increase for land that is vacant for multiple years:

• Rate in Year 1:                                                   1% of capital improved value

• Rate in Year 2:                                                  2% of capital improved value

• Rate in Year 3 and subsequent years:                3% of capital improved value

Landowners must be careful due to the accelerating rates – otherwise they may find themselves with unexpectedly high vacant residential land tax bills.

Changes in 2026

Unimproved/undeveloped land captured

Vacant residential land tax will apply to land in metropolitan Melbourne that has remained undeveloped for at least five years and is capable of residential development.

It does not apply to land in a non-residential zone or land that is under development for a non-residential use.

Land will also be exempt if it is incapable of being used or developed for residential purposes.

An application can also be made for an extension to the five-year period if there is an “acceptable reason” for a delay in development.

Exemption for land contiguous to an owner's principal place of residence

An exemption will be applied to vacant land that is contiguous to an owner's principal place of residence.

The contiguous land must share a boundary or touch the existing principal place of residence.  It must also enhance the owner's principal place of residence and be used solely for the private benefit and enjoyment of the owner.

This exemption becomes necessary as unimproved land will be brought into the tax.

What happens if a taxpayer fails to notify the State Revenue Office a property is vacant?

Failure to comply with vacant residential land tax obligations may result in the imposition of penalties.

The standard rate of penalty tax applied is 25% of the additional amount of vacant residential land tax.  However, this can be reduced to 5% for a voluntary disclosure before an investigation.

Penalty tax should not apply if reasonable care was taken by a landowner to notify the State Revenue Office or if circumstances beyond their control have caused a notification default.

Landowners can object to vacant residential land tax if they believe that it has been charged in error.

There is also an informal dispute resolution process which may be utilised.

Action required

Effected Landowners could consider a number of options if they want to avoid triggering vacant residential land tax including:

• ensuring affected properties are occupied for at least 6 months of a calendar year – this could include use by them or their family, or leasing it to third parties.

• For holiday homes, ensuring they are used by the owner or their relatives for at least 4 weeks in the year.

• For properties held in a trust or company, prior to 31 December 2024, consider transferring the property to an individual who will qualify for the holiday home exemption (after considering the costs of such a transfer including capital gains tax and land transfer (stamp) duty.

• Investigating whether other exemptions apply.

• Selling the property before 31 December 2024.

If a landowner intends to claim an exemption, evidence should be collated to support the position.

Landowners should be aware of the potential for State Revenue Office enforcement or monitoring of property use including under the trial compliance system to be introduced.

Taxpayers should also consider if they need advice on vacant residential land tax or potential other tax consequences of their properties.  Sladen Legal is well placed to assist, as our State Taxes team work closely with our colleagues in other teams including Property & Development and Personal Succession Planning & Deceased Estates to provide holistic solutions to our client’s issues.

Please contact us with any questions with respect to the vacant residential land tax and 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