By Jack Nevile and Anna-Nikol Vladimirova
The Victorian Government has expanded the Vacant Residential Land Tax to the entire state, and made some crucial changes. If you own vacant property, you need to act now.
A property is considered ‘vacant’ if it has not been lived in for six months by either:
- the owner (or an owner’s permitted resident) as a principal place of residence; or
- a person under a lease, or bona fide short-term letting arrangement.
It is not enough that the property was ‘available’ for occupation. A listing or available on AirBnB won’t pass the pub test. It must actually have been used and occupied for more than 6 months, which can be intermittently as long as it is 183 days throughout the year.
The tax is 1% of the capital improved value (CIV) of the property, found on your council rates notice. This tax is slightly different to traditional land tax as it uses the CIV and not the site value of the land. You must also pay standard land tax in addition to this tax.
It will increase to 2% in the second year if your property remains vacant, and 3% in the third, where it is capped. On a $2,000,000 property this will be $60,000 per year.
Previously, outer Melbourne and regional properties were exempt – no longer. The entire state is subject to the tax, effective from 1 January 2024. There is an exemption for holiday homes occupied by the owner for at least 4 weeks per year – the Commissioner must be satisfied your holiday home is genuinely for holidays. There is also a brief exemption for properties undergoing renovations.
I have vacant property – how can I avoid it?
- Rent out your property
- Sell your property
- Use it as a holiday home for at least 4 weeks per year, provided you genuinely can do so. You can’t live in Carlton and holiday in the CBD, for instance.
The purpose of this tax is to encourage homeowners to make use of their property in light of the ongoing housing crisis. So the best way to avoid it is to play ball.
If you’re a renter, this can be great news. More supply should come to the market (although a similar law was enacted in Canada a few years ago, and there weren’t many additional homes made available). You may know of a vacant property – why not ask the owner if you can move in? Surely some rent is better than a huge tax bill. One of our lawyers did just that, and has moved into a previously empty property, saving the owner a big tax bill and making it livable in the process.
But who will know?
If you own a vacant property, you are required to notify the SRO using the Notification Portal by 15 January. Failure to do so incurs substantial penalties.
Late disclosure is treated more favourably than being caught in an investigation. The following penalty taxes apply if you do not disclose promptly:
- 5% if you voluntarily notified late;
- 20% if you notify after an investigation commences; and
- 90% if the SRO believes you intentionally disregarded the law and hindered their investigation.
Helpful Tools:
- The SRO has an online tool to help determine whether the tax applies to you
- The Vacant land tax calculator to calculate the amount payable, if it does.
If your residential property has enjoyed a prolonged vacancy, the winds of change have arrived. Don’t wait until the taxman comes knocking to do something. If you have any questions, please feel free to contact our office.
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.
