One of the state government’s many new taxes is the Vacant Residential Land Tax (VRLT).  And it requires action for many no later than 15^th January.

So what is the VRLT?

It is a tax imposed on residential properties not occupied for 6 months or more during the 2024 calendar year.

Why you need to be careful

Don’t be fooled by Land Tax being within the name of this new tax.  This ain’t no small charge!

There are 3 reasons as to why an unexpectedly large liability may arise:-

1. Whilst Land Tax is based off the value of land, VRLT is based of the capital improved value of the property (so house and land).
2. There is no threshold as with Land Tax (whereas there is a tax free threshold before Land Tax is payable – albeit that has now been slashed from $300,000 to $50,000).
3. The rate for 2025 (based off 2024 unoccupancy) is a flat 1%.

So how much is payable?

In the first year, it would be $10,000 on a $1,000,000 property; $15,000 on a $1,500,000 property.

But the rate rises to 2% in 2026 – so $20,000/$30,000 is payable.

And then it rises to 3% in 2027!

The only “good thing” about it is that, as with Land Tax, it is deductible.

So what does the state government need you to do?

Property owners should have received a letter before Christmas from the State Revenue Office.

That letter includes a link with which to notify the State Revenue Office that you have a residential property that was capable of being occupied but was unoccupied for 6 months or more during 2024.

You need to do so no later than Wednesday 15^th January 2025.

There is no obligation to do so if the property was under construction, under renovation or that was uninhabitable as at 31^st December 2023 (but may be liable from the 2026 year as this exemption can only run for 2 years).  Beware of what constitutes a property that is under construction, under renovation or that was uninhabitable.

So what constitutes vacancy?

A residential property that is not occupied as either:-

• A principal residence of the owner or an occupant permitted by the owner.
• Under a lease or genuine short term arrangement.

None of the available State Revenue Office guidance specifies what constitutes a day.  Presumably it is counted by nights stayed – so presumably a weekend counts as one day and not two.

Are there any exemptions?

Yes.

Properties that are exempt from Land Tax are exempt from VRLT.

Other exemptions include:-

• Holiday homes (see below for special rules).
• Homes used for work purposes.
• Properties transferred in the previous year.
• New residential properties.
• Newly developed properties where the ownership is unchanged.

It is beyond the scope of this blog to explore all exemptions so one must be clear on whether they do in fact satisfy one of these exemptions to avoid risking penalties of up to 90% as well as interest.

There is also no exemption based off when a property was purchased.  VRLT simply applies to residential properties owned at 31^st December 2024.

Holiday home exemption

We will explore this exemption due to its commonality to many.

An exemption is available to an owner who has an Australian principal residence (either owned or rented from someone else).

It must be a genuine holiday home to the satisfaction of the State Revenue Office.  They give regard to location and distance (which is an interesting matter for those people I still know who have long family held generational family holiday homes in places such as Aspendale and Frankston).

The exemption applies when the property is occupied for at least 4 weeks.  That need not be consecutive.

One can only claim one holiday home exemption.

Special rules apply to trusts and companies.

Special rules also apply to deceased estates.

Whilst the State Revenue Office has commented on properties owned by trusts and companies, it has not commented on properties owned by companies where that company itself is owned by a company or trust.  It is unclear whether the VRLT has been poorly drafted or the State Revenue’ Office guidance is lacking.

When is the VRLT payable?

It remains to be seen how quickly these notices issue.

One then has 60 days to pay the tax.

It can be paid by B-Pay, credit card, debit card or instalments.

Objection rights

An owner has 60 days to object upon receipt of the assessment.

We suspect given other current State Revenue Office activity in respect of other taxes that response times will be slow.

If unsuccessful, one can then appeal to VCAT.

Should I keep or sell my vacant property?

Perhaps the first question is can I or should I rent it?  This may require a substantial outlay to ensure that it meets rental standards – noting that one modern requirement is heating within every room.

Whether you hold or sell is not a matter to be taken lightly.  For most people the most appropriate course of action is to engage a financial planner as they have powerful modelling software that can extrapolate the financial outcomes.

A word of warning

No doubt there will be some who may be tempted to falsely not declare a vacant property subject to VRLT.  We have already referred to the substantial penalties and interest.  One should also be mindful that the State Revenue Office can cross match rental bonds as well as water and electricity usage.

Closing remarks

This has been a difficult blog to write as the tax is new, there is little literature to refer to and some of that is confusing or unclear.

If there is doubt, it seems best to notify and then appeal.

That all said, we welcome any question you may have.