By Jack Nevile
What is VLRT?
The Victorian Government is broke and needs money. Every announcement from the State for the foreseeable future should be seen through this lens, at least until politicians decide to stop wasting your money, or hell freezes over. Consider investing in a good jacket.
How does a government get the most feathers from the duck, with the least amount of quack? Remember, politicians don’t want to lose voters but desperately need to take their money. The tried-and-true method is starting with politically popular taxes. They’ve announced a swathe of fees for foreigners, businesses, and landlords, the usual easy targets. But another type has also arisen – the landbanker. This term creates a fantastic scapegoat – they’re hoarding precious land which should be ours! – and nobody is going to write long newspaper articles crying for a wunch of bankers, after all.
Vacant Residential Property Tax is a tax on any property in Victoria which was vacant for more than 6 months in the calendar year. It is levied at 1% of the Capital Improved Value (the value shown on your rates notice – usually the market value minus ~10%) for the first year, and increases by 1% each subsequent year, up to a maximum of 3% per year.
The main ways to avoid the tax are:
- Live in the property yourself;
- Rent out the property under a Lease or bona fide short-term letting arrangement, and the property was actually occupied for 6+ months;
- Transact the property, i.e. sell, or have bought it in that calendar year;
- The house is a holiday home used by either you or your relatives for 4+ weeks of the year; or
- The land has been uninhabitable for under 2 years.
Surely it’s not a big deal. How many empty houses can there possibly be?
It is a big deal. And don’t call me Shirley. According to Prosper, 1.5% of property in Melbourne is completely empty, and about 5% are usually empty, if you calculate based on water consumption. If you go for a long walk around your neighbourhood you will probably see heaps. My guess is the real number of completely empty properties is far above 2% – leaky taps don’t pay rent. Prosper’s report is here:
What VLRT means for you
Combined with other new taxes, many property investors are abandoning the good ship, Victoria. Just look at the national house price indices:
(h/t to @rabbit_wealth on Twitter)
People who may have otherwise held their property in the hope of capital appreciation are selling, so much more supply is available than usual.
If you’re a renter this is good news – empty/abandoned property should start to hit the market. In my own neighbourhood I notice empty properties – an unfortunate side effect of doing squatters rights law – and some of them have suddenly been spruced up and are now for rent at exorbitant prices. More property for rent means lower prices.
If you’re an enterprising renter this is even better news – you may know of an abandoned property somewhere you want to live, and you may also know the VLRT on an empty $1,000,000 house is $10,000 a year. Better you live in it for cheap rent, than it staying empty and the owner pays the government. You don’t have to deal with an agent, the landlord gets a tax break, and you get a home.
Speaking of, first homebuyers are seeing big wins – the government is splashing out money in the form of 25% equity loans with 0% interest, and prices are dropping. Some of my first home buyer clients are buying simply because the mortgage on the other 75% is cheaper than renting the same house.
My final thoughts
If you’re lucky enough to have an empty property lying around, it’s time to do something about it before January 1 when the tax hits. Call our office on (03) 9664 4700, or send me an email at jack.nevile@nevile.com.au.
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.
