The Vacant Residential Land Tax (VRLT) in Victoria has been a topic of much discussion, especially among property investors and homeowners who may be affected by this tax.
Originally, this tax applied only to residential land in the inner and middle suburbs of Melbourne, but recent legislation has expanded its scope to include all of Victoria.
In this article, we'll break down what the VRLT means, how it could impact you, and some practical steps you can take to manage your obligations.
What is the VRLT?
The VRLT is a tax on residential properties in Victoria that are left vacant for more than six months in a calendar year.
Starting from January 1, 2025, the tax will apply statewide, with an initial rate of 1% of the property's capital improved value (CIV).
This rate can increase to as much as 3% depending on how long the property has remained vacant in consecutive years.
Key Points:
- Who is Affected? If you own residential property anywhere in Victoria and it remains unoccupied or not leased for more than six months in a calendar year, you may be liable to pay the VRLT.
- Tax Rates: The tax starts at 1% of the capital improved value of the property and can increase up to 3% based on how many consecutive years the property is liable for the VRLT.
- Important Dates: Owners must notify the State Revenue Office (SRO) by January 15 of each year if their property was vacant for more than six months in the previous year and if they wish to claim an exemption.
What qualifies as 'vacant'?
A property is considered vacant if it has not been lived in by:
- The owner or the owner’s permitted occupant as their principal place of residence, or
- A tenant under a lease or a genuine short-term letting arrangement.
Interestingly, the definition of vacancy also extends to properties that are being renovated, those where a former home has been demolished, or where a new home is under construction.
This could catch some owners off guard, particularly those engaged in longer-term renovations or developments.
Exemptions: not everyone has to pay
There are a couple of principal exemptions that may apply, which could save you from paying the VRLT:
- Holiday Home Exemption: If you or a relative used the property as a holiday home for at least four weeks in the previous year, and it’s held under certain ownership structures, you might be exempt.
- Work-Related Exemption: If you occupy the property for at least 140 days of the year for work purposes, and you have a separate principal place of residence in Australia, you could qualify for this exemption.
However, the specifics around these exemptions can be tricky, especially when properties are owned through complex structures like trusts or companies.
Case study: a tale of two investors
Let’s take a look at two examples to see how this plays out in real life:
John’s Story:
John owns a principal place of residence (PPR) in Malvern and a holiday home in Sorrento.
He uses the Sorrento property as a holiday home for more than four weeks a year, but it’s unoccupied for over six months annually.
Because John uses the property sufficiently and lodges the required notifications with the SRO by January 15, 2025, he qualifies for the holiday home exemption and avoids paying VRLT on his Sorrento property, though he still pays the usual land tax.
Angela’s Challenge:
Angela owns her PPR in Brighton East and a holiday home in St Andrews Beach through a Unit Trust.
The holiday home has an unimproved value of $2.1 million and a capital-improved value of $3 million.
However, because at least 50% of the units are not owned by a natural person, she does not qualify for the holiday home exemption.
In 2025, she will owe about $18,000 in regular land tax and an additional $30,000 in VRLT.
If the property remains vacant, her VRLT liability could rise to $60,000 in 2026 and $90,000 in 2027.
Moreover, failing to lodge her notification could lead to penalties and interest, making the financial impact even more severe.
The bottom line
The VRLT is a significant consideration for property owners in Victoria, especially with the expanded coverage across the state.
If you own a residential property that’s at risk of being deemed vacant, it’s crucial to understand your obligations and any exemptions you might be eligible for.
Failing to comply can lead to hefty penalties, and with tax rates increasing based on consecutive years of vacancy, the financial burden can escalate quickly.
To avoid unexpected costs, review your property holdings, understand the criteria for vacancy, and ensure timely notifications to the SRO.
And as always, consult with your tax advisor or property strategist to navigate these rules effectively—being proactive now can save you a lot of headaches (and dollars) down the line.
For more detailed information and to check if your property might be affected, visit the official State Revenue Office website.
