Changes to Victoria’s vacant residential land tax system

In early October, the State Taxation Act and Other Acts Amendment Bill 2023 was introduced into the Victorian Parliament. This bill makes sweeping changes to Victoria's vacant residential land tax regime.

Summary of changes made to the Victorian vacant land tax:

• Victoria’s vacant residential land tax will be extended to all vacant residential land in Victoria from 1 January 2025
• Vacant land that has been unimproved for five years, situated in metropolitan Melbourne (which includes the Mornington Peninsula,) will be subject to Victoria’s Vacant Residential Land Tax from 1 January 2026.

Vacant Residential Land Tax – Existing Dwellings

From 1 January 2018, Victoria introduced a vacant residential land tax. The rationale for this measure originally was to address housing shortages in Melbourne, by encouraging landlords to offer unused properties for rent. Vacant residential properties located in certain local government areas in the CBD and inner suburbs of Melbourne are taxed at the rate of 1% of the property’s Capital Improved Value.

When is a property considered to be vacant?

A vacant property is one that has not met either of the following conditions for at least six months in the previous year:

• Occupied as a principal place of residence by the owner or their permitted occupant.
• Subjected to a lease or short-term letting arrangement (provided this was made in good faith and not for the avoidance of land tax).

How will the changes in the vacant residential land tax impact existing dwellings in Victoria?

The changes in the State Taxation Acts and Other Acts Amendment Bill 2023 will amend the Land Tax Act 2005 (VIC) by removing the geographical requirement that the land be situated in certain local government areas, thus extending the vacant residential tax to all of Victoria. Importantly, this means that properties in the outer suburbs of Melbourne, including popular Melbourne holidays hotspots, and regional areas will now be caught by this tax. This measure is due to apply from 1 January 2025 with respect to the use of a property from 1 January 2024.

Owners of residential property in Victoria will need to submit an online declaration by 15 January if the relevant property was vacant for more than six months in the previous twelve-month period. Landowners should note that the Victorian SRO data matching, which includes checking utility usage, will help determine whether a property is vacant.

Holiday home exemptions

If you own a holiday home in VIC, you may not have to pay the vacant residential land tax. For example, if you or a trust beneficiary use the holiday home for at least four weeks in a calendar year, it may be exempt from the tax. You can only claim this exemption for one holiday home. The Commissioner of State Revenue must also agree that your property is a genuine holiday home.

This holiday home exemption does not apply if a company or a trust with no vested beneficiary (such as a discretionary trust) owns the holiday home. In that case, you must use the holiday home as explained above to avoid the vacant residential land tax.  

Moving forward, we do not recommend purchasing a holiday home in VIC through a discretionary trust or company.

Vacant Residential Land Tax – Unimproved Land

Residential land with no buildings or access to basic services and utilities (unimproved land) for five or more years will also be subject to the Vacant Residential Land Tax.   In this case, the Bill has not extended the tax on unimproved land to all of Victoria and will still only apply  to residential land in specific local government areas of Melbourne. However, the list of local government areas has been expanded from the list included in the original vacant residential land tax measure from 2018. 

How will the changes in the vacant residential land tax impact unimproved land in Melbourne?

Unimproved land situated in the outer suburbs of Melbourne (for example, in the Dandenong Ranges) or in the popular holiday hotspot of the Mornington Peninsula will now be caught by the vacant land tax.  This measure commences on 1 January 2026.

Vacant land tax exemptions for unimproved land

This measure also includes two new exemptions:

•  The first grants an exemption for land adjacent to a primary residence, even if separated by a road, railway, or similar barrier.
•  The second exemption concerns land that cannot be developed for residential purposes.

Concluding Comments

These measures are currently before the Legislative Council of the Victorian Parliament.  With debate well progressed, we expect them to be enacted in their current form.

FOR MORE INFORMATION

If you would like to discuss how these measures might impact you, please contact your local RSM adviser.