Vacant Residential Land Tax: Victoria’s Strategy to Combat Property Vacancy

Residential property is quickly becoming subject to a rising number of Victorian state-based taxes, and potentially, the next tax to affect Victorian property owners is the “Vacant Residential Land Tax” (VRLT).

From 1 January 2025, significant changes to the VRLT will commence, capturing more Victorian properties under the scheme, further increasing Victoria’s tax revenues and subsequently increasing the amounts Victorian property owners will potentially pay.

Key features of the Victorian vacant residential land tax

The VRLT was first introduced in 2018 as an annual tax, in addition to land tax. It applies where residential land is considered “vacant,” which varies depending on the circumstances of each property.

The primary definition of residential land is ‘land that is capable of being used solely or primarily for residential purposes’ [Land Tax Act 2005 (Vic) (LT Act), s 34B(1)].

While the VRLT may seem to be a tax in its own right, it is clearly a species of land tax [it is defined as ‘land tax imposed under Division 6 of Part 2’: LT Act, section 3(1)]. Accordingly, it is to be assessed in the same way as any other land tax, with the tax for a given land tax year based on the ‘total taxable value of all taxable land’ held at midnight of the preceding 31 December.

Section 34A(1) of the LT Act provides that VRLT is imposed each year on ‘taxable land in Victoria that is ... residential land which is vacant’.

To be considered vacant, land containing an existing residence must not have been lived in for more than six months in the preceding calendar year by either:

• The property owner or a “permitted occupant” (i.e., tenant) as their primary place of residence; or
• A person under a short-term lease/letting arrangement in good faith (i.e., not made for the avoidance of VRLT).

Where the property is uninhabitable or under construction, VRLT will apply after two years. If the property is still vacant two years after either becoming uninhabitable or the issuance of building permits for construction, then VRLT will apply.

Up until 31 December 2024, the VRLT had only impacted 16 inner metropolitan Melbourne council areas. The VRLT is being levied at 1% of the property’s Capital Improved Value (CIV).

When assessing VRLT, remember to consider:

• When to test whether land is ‘residential land’ for VRLT purposes; and
• Whether the residential land was vacant for more than six months in the preceding calendar year.

Changes for property owners from 2025 and beyond

From 1 January 2025, VRLT has been expanded to apply Victoria-wide, impacting almost all residential properties regardless of location. Also, a progressive tax rate will apply for properties with VRLT applicable for consecutive years (applying retrospectively).

Example: Using a $1,000,000 CIV property value as an example, the property owners will now be taxed as follows:

• Year 1 vacant: 1% of CIV = $10,000
• Year 2 vacant: 2% of CIV = $20,000
• Year 3 and beyond: 3% of CIV = $30,000

From 1 January 2026, other changes applicable include unimproved residential land in metropolitan (inner and middle) Melbourne, which attracts a fixed 1% tax rate on the property.

Unimproved land is defined under the changes as:

• Residential land without a home; and
• Where construction of a residential dwelling has not commenced within the last five years.

This will be applied retrospectively, so undeveloped, vacant land from 1 January 2020 will potentially be liable for the VRLT from 1 January 2026.

What concessions or exemptions may be available?

There are various concessions and exemptions that may apply for Victorian property owners. For land to be subject to VRLT, naturally the land must be considered ‘residential property’. However, the following types of residential properties are not considered residential land, and VRLT will not be applicable:

• Commercial residential premises.
• Residential care facilities.
• Supported residential services.
• Retirement village services.
• Display homes.
• Residential land in certain alpine resorts (from 1 January 2025).

Also, where Victorian land tax does not apply to a property, neither does VRLT. Exemptions include primary production land and properties owned by charitable institutions.

Land is exempt from VRLT (section 88D of the LT Act) if:

• The land was not residential land at the start of the preceding year; and
• During the year, it becomes residential land.

There are various other specific eligible exemptions available to be considered too, including the following scenarios:

• Property is being/has been rezoned.
• Change of property ownership.
• Holiday home.
• Work accommodation.

Each of the above has specific requirements to be met for the exemption to apply to the property.

For example, a holiday home can be exempt from VRLT if used by the owner (or close relatives) for at least 28 days in the calendar year. These days are not required to be consecutive but also cannot be simultaneous. All owners of the property must have another property in Australia as their principal place of residence (PPR).

Only one property can be claimed as a holiday home, and good supporting records of occupation should be maintained if substantiation is required.

Compliance requirements and notification deadlines

If you believe this tax applies to one or more of your properties, you must notify State Revenue Office Victoria (SRO). Notifications for VRLT must be lodged with the SRO by 15 January each year and can be done via the VRLT portal on the SRO’s website.

A notification is fundamental if any of the following apply:

• Residential land is considered vacant.
• An exemption applies.
• The property became “residential” in the last 12 months (i.e., it was rezoned).
• The residential land is no longer vacant.
• A previous concession or exemption no longer applies to the property.

The tax applies to the preceding calendar year, so notifications required by 15 January 2025 need to be made regarding the 2024 calendar year. If a notification has not been made where it should have been, the SRO can apply significant penalties of up to 90% of the assessment in addition to interest charges. Neglecting to notify the SRO where VRLT is applicable may result in considerable penalties.

Late disclosures are treated more favourably than vacant properties identified through an investigation if the SRO is to consider remission of penalty tax.

Conclusion

Property ownership in Victoria is becoming more complex, particularly where multiple properties are owned. VRLT is just one of many new state-based taxes attempting to tackle the housing supply issues in Victoria.

The increasing VRLT rates will significantly cost property investors who wish to leave their properties vacant, which may require a change in strategy for some investors.

Should you wish to further discuss VRLT and its application to your circumstances in more detail, contact your local RSM adviser to assist.