New Vacant Residential Land Tax commences on 1 January 2018


This week the State Revenue Office of Victoria (SRO) will issue 22,000 letters and emails to property owners asking them to declare whether their property is subject to the new Vacant Residential Land Tax (VRLT). You may receive a letter or email so here’s what you need to know about the new tax.

What is the VRLT?

From 1 January 2018, the VRLT will be payable on residential properties in Melbourne’s inner and middle suburbs (affected municipalities can be viewed on this SRO web page) - which are unoccupied for more than six months in any calendar year. The VRLT is an annual tax calculated on 1% of the capital improved value (CIV) of taxable land. That is an important difference from land tax, which is imposed on the unimproved or site value of the land. The CIV can be found on the council rates notice for the property. By way of example, a taxpayer who owns vacant property with a CIV of $1.5m will be liable to pay VRLT of $15,000 in 2018.

Whether or not a taxpayer is liable for the VRLT in the 2018 land tax year will depend on whether their property was vacant for more than six months in 2017. To assist with the transition to the new tax, all properties are deemed to have been occupied for the period between 1 January and 30 April 2017. This means that a property should not be liable to the VRLT in 2018 if the owner or a permitted occupant has occupied the property as their principal place of residence (PPR) for at least 2 months during the period between 1 May and 31 December 2017. Similarly, the property should not be liable to the VRLT in 2018 if the property is occupied under a genuine lease or short-term letting arrangement for at least 2 months between 1 May and 31 December 2017. However, for the 2018 calendar year onwards an aggregate of at least 6 months’ occupation each calendar year will be required unless a specific exemption applies.

For our developer clients, it is important to note that a property will be vacant and thus subject to the VRLT if it is not developed and sold within two years of date of issue of the building permit. Once the two year period expires, the property will be subject to the VRLT if it is vacant for more than six months in the calendar year, irrespective of any efforts to advertise that property for rent or sale during that time.

How do I notify the SRO of my vacant property?

The SRO has recently launched its on-line notification portal for the VRLT, in which taxpayers who own vacant properties subject to the VRLT are required to disclose their property. For the 2018 year, the notification deadline is 15 January 2018. If a notification is not made by this date and the SRO subsequently determines through its compliance activities that a property is subject to the VRLT, a penalty may be imposed in addition to the tax.

Are there any exemptions from the VRLT?

If a property changes ownership during a year, it is not subject to the VRLT in the following year.

A ‘holiday home’ exemption from the VRLT is available to owners who also have a PPR elsewhere in Australia. Broadly, this exemption can apply to a property occupied as a holiday home by the owner for at least four weeks in the calendar year. In order to be eligible for this exemption, the SRO must be satisfied that the property is a “genuine” holiday home. Exemptions are also available for city properties used for work purposes (for at least 140 days each calendar year) and new residential properties.

Recommended action

From a practical perspective, owners with more than one residence in Australia will need to determine which residence constitutes their PPR for both land tax and VRLT purposes. We recommend that our clients update their details with the relevant government agencies, utility providers, etc. before the end of the year, to accurately reflect their PPR. This may become important evidence if you become subject to the SRO’s compliance activities in respect of the VRLT.

Clients who have multiple Victorian residences should consider their land tax and VRLT positions for the 2018 calendar year onwards. Nominating a property outside the inner and middle suburbs of Melbourne (VRLT Zone) as your PPR when you have another vacant property in Melbourne could now result in you paying significantly more land-related tax overall than if your PPR is located within the VRLT Zone. This is because the property within the VRLT Zone may, in addition to being subject to land tax, become subject to the VRLT from 2018 onwards.