BEWARE THE EXPANDED VACANT RESIDENTIAL LAND TAX (VRLT) APPLICABLE FROM 2025 CALENDAR YEAR

by | Aug 30, 2024 | Property

Our client mail out of November 2017 reported on the introduction of a new VRLT applicable from the 2018 calendar year. To view a copy of our mail out please see link to our website here: https://riordanriordan.com.au/from-1-january-2018-there-will-be-a-new-vacant-residential-land-tax-vacancy-tax/ 

The tax applied to residential land in the inner and middle suburbs of Melbourne. Recent legislation has extended the application of the VRLT to residential land across all of Victoria along with other important changes.

Summary:

  •  If you own residential property in Victoria which is vacant (i.e. not occupied or leased); and
  •  the vacancy is for more than 6 months in a calendar year; then
  • you may be liable to pay VRLT commencing at 1% and increasing to 3% of the capital improved value; unless
  • you may be eligible for exemptions; but
  • those exemptions are determined by the use for the previous year (i.e. 2025 tax exemption based on use of the property in 2024 calendar year).
  • you must notify the State Revenue Office by 15 January 2025 if you own vacant residential property and if you wish to claim an exemption.

Detail:

  • Effective from 1 January 2025, VRLT will apply to all residential land in Victoria that is vacant for more than six months in the previous calendar year.
  • Residential land includes:
  1. Land with a home on it
  2. Land with a home which is being renovated or where a former home has been demolished and a new home is being constructed
  3. Land with a home on it that has been uninhabitable for 2 years or more
  • Unimproved land is generally not considered as residential property. However, from 1 January 2026, VRLT will extend to include all unimproved residential land in metropolitan Melbourne that has remained undeveloped for at least 5 years and is capable of residential development with some exemptions.
  • Meaning of “vacant” – a property is considered vacant if, for more than 6 months in the preceding calendar year, it has not been lived in by:
  1.  The owner, or the owner’s permitted occupant, as his/her principal place of residence (PPR) or
  2. A person, under a lease or short term letting arrangement made in good faith.
  • The rate of VRLT will commence at 1% of the capital improved value of the property increasing up to 3% based on the number of consecutive tax years the land has been liable for VRLT (1% for first year, 2% for second consecutive year, 3% for third or more consecutive years). VRLT is additional to normal Land Tax.
  • Exemptions – there are two principal exemptions from the obligation to pay VRLT, being:
  1. Holiday Home – this exemption applies where an individual owns the land and the owner or a relative of the owner uses and occupies the land as a holiday home for at least four weeks in the prior calendar year. The exemption may also apply to holiday homes held by companies or trusts provided certain specific criteria are satisfied.
  2. Work – this exemption applies where the property is occupied by the owner for at least 140 days of    the prior calendar year for the purpose of attending his/her workplace or business and the owner      has a Principal Place of Residence (PPR) in Australia.
  •  Notifications – if you own a property that was unoccupied for more than six months during a calendar year, you are required to notify the State Revenue Office (SRO) by 15 January of the following year using its online portal. If you wish to claim an exemption in respect of such property, the claim must be made on the portal. Failure to make such Notifications may result in loss of an exemption and penalty tax and interest.

 Examples

  1. John’s PPR is in Malvern. He owns a holiday home in Sorrento which is used for more than four weeks each year but is unoccupied for more than six months each year. John will be liable for normal Land Tax on the Sorrento property but will be exempt from VRLT provided that, by 15 January 2025, John lodges the required Notifications on the SRO portal that the Sorrento property was unoccupied for more than six months during 2024 and claims the holiday home exemption.
  2. Angela’s PPR is in Brighton East. She also owns a holiday home in St Andrews Beach via a Unit Trust in which the sole unitholder is a company ultimately controlled by her. The holiday home has an unimproved value of $2.1m and a capital improved value of $3m. Angela shall not be eligible for the holiday home exemption as at least 50% of the units are not owned by a natural person. Thus, in 2025, in respect of the holiday home, Angela will be liable for normal Land Tax of about $18,000 and VRLT of $30,000. If her circumstances do not change, her VRLT will increase to $60,000 in 2026 and $90,000 in 2027.Further, if Angela fails to lodge the required notification with the SRO, she may be liable for additional penalty tax and interest.

IF YOU OWN A PROPERTY WHICH MAY BE IMPACTED BY VRLT, PLEASE DO NOT HESITATE TO CONTACT US FOR ADVICE ON WHAT ACTIONS YOU SHOULD TAKE