The Victorian Government introduced the Vacant Residential Land Tax (VLRT) in 2018. In the words of the State Revenue Office “VRLT is different to land tax, the absentee owner surcharge and the federal annual vacancy fee.” That is, there are now at least four taxes that can apply to vacant homes if you don’t do as the government requires.
The Victorian Government decided to significantly expand the scope of VLRT from 1 January, 2025. VRLT will now apply to property throughout Victoria and to residential land development sites from 1 January, 2026.
VLRT is set at 1% of the CIV (or land value) of the property for the first year, 2% for the second year it is vacant and 3% for the third and subsequent years. This is in addition to any land tax payable.
If you own a home that has been vacant for more than 6 months you are required to notify the State Revenue Office. Vacant for more than 6 months means that he house was unoccupied for periods totaling more that 6 months in the calendar year 2024.
Exemptions
There is an exemption for holiday homes.
In simple terms the holiday home exemption will apply to a home:
- used as a holiday home,
- for periods totaling at least 4 weeks in a year,
- by the owner (or a relative of the owner),
- who has a principal place of residence in Australia.
This exemption may extend to an adjoining vacant lot provided set conditions are met.
An owner will only be able to claim one holiday home in any year.
There are also exemptions for land that was purchased in the year, became residential land during the year or was subject to construction.
PPR and Land Tax
Holiday homes, not being a principal place of residence, will ordinarily be subject to land tax.
This has resulted in many clients receiving unexpectedly large land tax bills over the last few years.
However, this trend is unlikely to stop as, in a rather sneaky move, the State Revenue Office has decided that land in Metropolitan Melbourne that adjoins a principal place of residence may no longer qualify for the PPR concession.
The Importance of Planning
It goes without saying that many property owners will need to review their land holdings and the uses to which they are put. Some forward planning may assist to reduce the overall tax likely to be paid.
This planning is better done before tax assessments are lodged.
Further, if you have to notify the State Revenue Office of a vacant property this needs to be done by 15 January, 2025.
Concluding Comments
The increasing regulation of the use of residential property in Victoria and the increased taxes are staggering.
My thoughts immediately turn to the book “Why Nations Fail” penned by two if the three winners of the 2024 Nobel Prize for Economics. One of their core arguments is that economic growth at a national level relies on the protection of property rights. In this respect, these new taxes seriously infringe on property rights and the ability of owners to use their assets as they see fit.
However, I rather doubt that our state politicians would have given any thought to this. As I often point out, the only major profession that doesn’t require a licence or qualification is politician!
Next week we will look at highlights from our 2024 Newsletters.
Lewis O’Brien
Your Preferred Property Lawyer