Expansion of Vacant Residential Land Tax from 1 January 2025

From 1 January 2025, the scope of the Vacant Residential Land Tax (VRLT) is significantly broadening and will impact numerous property owners.

The VRLT is wholly separate from the standard land tax and will lead to many properties being hit with both forms of taxes on an annual basis if the risk of exposure is not managed. While both taxes are contained in the Land Tax Act 2005 (Vic), the regime for the VRLT is separate from the land tax regime and any exemptions will need to be carefully considered and managed.

VRLT will apply to all of Victoria

Currently, the VRLT applies to homes in 16 specified urban council areas that were vacant for more than six months in the preceding calendar year. The tax is assessed by calendar year and is set at 1% of the capital improved value (CIV) of taxable land.

From 1 January 2025, VRLT will apply to residential land across all of Victoria if the land contains a home that is vacant for more than six months in the preceding calendar year. While these changes take effect from 1 January 2025, they are based on the occupancy of premises in the preceding year, that is, from 1 January 2024. Accordingly, if a residential property anywhere in Victoria has been vacant for more than six months during the period 1 January 2024 to 31 December 2024, the State Revenue Office (SRO) can levy a VRLT assessment for the 2025 land tax year.

VRLT may apply to residential land containing:

• an existing home that is vacant for more than six months in the calendar year preceding the tax year;
• a home that has been under construction or renovation for two years or more; and
• a home that has been uninhabitable for two years or more.

A new progressive rate of VRLT will apply to non-exempt vacant residential land across all of Victoria based on the number of consecutive tax years the land has been liable for VRLT. The new rates will apply as follows:

• 1% of the CIV of the land for the first year the land is liable for VRLT where the land was not liable for VRLT in the preceding tax year;
• 2% of the CIV of the land where the land is liable for VRLT for a second consecutive year; and
• 3% of the CIV of the land where the land is liable for VRLT for a third consecutive year.

Critically, properties that are deemed ‘vacant’ (that is, not occupied for six months in the previous year) will be taxed based on their CIV which can be substantially higher than the land’s site value (i.e. unimproved value). In contrast, land tax is levied on the site value of land.

Expansion of the holiday home exemption

Currently, an exemption from VRLT applies to holiday homes owned by natural persons who must use and occupy other land in Australia as their principal place of residence (PPR).

From 1 January 2025, this exemption will be extended to holiday homes owned by a company or trustee, subject to satisfying several requirements.

Broadly, where a holiday home is held in a family trust, the exemption may apply where the following requirements are satisfied:

1. the trustee has owned the property continuously since 28 November 2023, or became the owner at a later date under a contract entered into on or before 28 November 2023 (the relevant date);
2. since the relevant date, any change in the ‘specified beneficiary’ of the trust has been limited to a change to add or remove a person who is a relative of another specified beneficiary;
3. the PPR requirement is satisfied, being that a specified beneficiary of the trust who is a natural person or a relative of that person in the year preceding the tax year used and occupied other land in Australia as a PPR (i.e. other than the holiday home);
4. in the year preceding the tax year, the property has been used and occupied as a holiday home for a period of at least four weeks (whether continuous or aggregate) by a specified person, being the natural person referred to in point 3 above, or their relative; and
5. the Commissioner of State Revenue is satisfied that the land was used and occupied as a holiday home in the year preceding the relevant land tax year.

We recommend all owners of holiday homes maintain a logbook (or similar record) to track the use of each property by their family members. Bank records of purchases in the local area, together with utility bills showing usage, will assist in establishing the use and occupation of the holiday home.

We are aware that in early December, the SRO commenced issuing mailouts to property owners, advising that they must notify the SRO if they own a home that has been unoccupied for more than six months and that failure to notify will attract penalties. Property owners should anticipate SRO investigations into the use of their holiday homes and be armed with sufficient contemporaneous documentation to demonstrate the usage of these properties.

Conclusion

These major changes to VRLT are not the end of the story. From 1 January 2026, VRLT will apply to all unimproved residential land in metropolitan Melbourne that has remained undeveloped for at least five years and is ‘capable’ of residential development. The details of this extension remain to be seen, including when land is considered to be ‘undeveloped’ (potentially if a certain percentage of construction has not occurred on the land).

Contact us

Please contact a member of our Tax team if you require advice regarding the expanded VRLT and the applicability of exemptions. We can assist you if you become subject to an SRO investigation or would like to challenge any VRLT assessment issued in early 2025.