By Meng Cheong and Linnea Cederberg

Land tax legislation is intensely complex and can pose challenges even for the most astute landowners. Given that land tax liability is contingent on the property’s occupation status as of the 31st of December each year, it is prudent to commence planning now to minimise any avoidable exposure.
The subsequent points highlight some of the areas of risk that we frequently observe impacting our private clients and their family homes.

Moving PPR House
One of the risks involved in moving house is that a land tax bill can be related to either your former residence or your new one.
Typically, the “principal place of residence” (PPR) exemption means most family homes are exempt from land tax. When a family relocates and there’s an overlap where both the old and new properties are in their names, the PPR exemption may cover both homes during this transitional period UNLESS:

  • The owner earns income from either home while it’s not their primary residence (e.g., through short-term leasing).
  • The old home remains unsold by the end of the assessment year for which the PPR exemption is granted.
  • The owner doesn’t occupy the new home within 12 months of purchase and utilize the new land as their primary residence for at least six continuous months.

The key takeaway is to strive for selling your former home within the year and avoiding the introduction of tenants to mitigate these risks.
Vacant Residential Land Tax (VRLT)
The imposition of a VLRT bill is a potential risk if you own residential property that remains vacant for more than 6 months in a given year.
Introduced from January 1, 2018, VRLT is an annual tax specifically applicable to homes in inner and middle Melbourne that are vacant for over six months in a calendar year. The tax is substantial, amounting to 1 percent of the capital improved value (CIV) of the vacant property. For instance, a property with a CIV of $1 million would incur an annual tax of $10,000.
VRLT is applicable to land that is suitable for residential purposes, such as a home or an apartment. This can also extend to land where a residence is undergoing renovation or where a former residence has been demolished for the construction of a new one, depending on the duration of the renovation/construction process.
An existing residence is typically deemed vacant if, for more than six months in the previous calendar year, it has not been occupied by one of the following:

  • The owner or the owner’s permitted occupier, utilizing it as their principal place of residence (PPR), or
  • A person under a lease or short-term letting arrangement made in good faith.

It’s crucial to emphasize that merely having the property available for occupation, such as by listing it on a short-term rental website, is insufficient. The property must have actually been used and occupied for more than six months.
Taxpayers bear the responsibility of notifying the State Revenue Office (SRO) by January 15 each year if a property they own was vacant for more than 6 months in the preceding calendar year. Failure to provide this notification could result in significant interest and penalties in addition to a Vacant Residential Land Tax (VRLT) assessment.
There are limited exemptions available for certain scenarios, including holiday homes, properties that changed ownership during the year, properties that became residential property during the year, and properties used and occupied by the owner for work purposes. The eligibility for these exemptions is contingent on specific technical criteria, and whether they apply depends on the unique circumstances surrounding a particular property.

Absentee owner surcharge
This is a risk in which involves incurring extra land tax if you reside overseas and are not an Australian citizen or permanent resident.
An annual surcharge of 2% is applied on top of the regular land tax rates for land owned by an absentee individual, an absentee corporation, or a trustee of an absentee trust.
In simpler terms, this surcharge may apply if an individual owner, a director of a corporate owner, or a beneficiary of an owning trust meets the following criteria:

  • They are not an Australian citizen or permanent resident.
  • They do not ordinarily reside in Australia.
  • They were absent from Australia on December 31 of the year preceding the relevant tax year, or for more than six months in total in the calendar year before the relevant tax year.

Landowners are obligated to notify the State Revenue Office (SRO) if they are an absentee owner. This notification must be made by January 15 of the relevant tax year, using the Absentee Owner Notification Portal on the SRO website.
When owners, directors, or beneficiaries are not Australian citizens or permanent residents, it’s essential to consider whether notification may be required under the absentee owner rules to avoid the imposition of additional land tax.

Disclaimer: This publication contains comments of a general and introductory nature only and is provided as an information service. It is not intended to be relied upon as, nor is it a substitute for specific professional legal advice. You should always speak to us and obtain legal advice before taking any action relating to matters raised in this publication.