Tax Alert - Expanding the net for Vacant Residential Land Tax in Victoria

Lowe Lippmann Chartered Accountants

Background

For the year ending 31 December 2024, VRLT only impacts properties in 16 of Melbourne’s inner and middle suburbs, which is imposed in addition to any other land tax or surcharge land tax that may apply.

A property is taken to be “vacant” if it has not been lived in for more than six months out of a calendar year, and this does not need to be a consecutive period of occupancy. Determining whether a property is “vacant” is done by considering the use of the land in the year that immediately precedes the relevant land tax year (ie. the use in the 2024 calendar year will determine whether VRLT applies in 2025).

VRLT is an annual tax for vacant land (subject to some exemptions), and for the year ending 31 December 2024, the VRLT rate is 1.0% of the capital improved value (CIV) of taxable land. The CIV of a property is a value of the land, buildings and any other capital improvements made to the property as determined by the general valuation process. It is displayed on the council rates notice for the property.

What are the new changes?

The State Taxation Acts and Other Acts Amendment Bill 2023 (Vic) (the Bill) has recently passed both houses of the Victorian Parliament to amend the Land Tax Act 2005 (Vic), and there will be four important changes to the VRLT rules from 1 January 2025 and 2026.

1) Applying VRLT to all vacant residential land in Victoria

For the year ending 31 December 2024, the VRLT only applies to vacant residential land within 16 of Melbourne’s inner and middle suburbs - click here to see current list.

Firstly, these changes will expand the current inner and middle suburbs geographic area to the whole state of Victoria from 1 January 2025.

2) Extending the VRLT to include certain “unimproved land” in Metropolitan Melbourne

For the year ending 31 December 2024, land is not considered vacant for up to two years from the date a building permit is issued for any significant renovation or reconstruction, and this two-year grace period will apply for the majority of Victoria.

Under these changes, land undergoing significant renovation or reconstruction within certain areas of metropolitan Melbourne will not be considered vacant for up to five years from 1 January 2026.

We must note that the “unimproved land” classification is simply vacant land, even without a dwelling of any kind on it. The five-year period is considered to provide adequate time for an owner of residential land to commence construction of a residence before it is regarded as vacant residential land.

3) Applying VRLT to all vacant residential land in Victoria

For the year ending 31 December 2024, the VRLT rate is 1.0% of the CIV of taxable land (as explained above).

In the eleventh hour of the Bill passing through the Victorian Parliament, the Victorian Green Party members proposed a change to the rate of VRLT to increase each consecutive year the property remains vacant.

Under these changes, the single VRLT rate will be expanded as follows from 1 January 2025:

No. years residential property is vacant	Proposed new VRLT rates %
1 year	1.0%
2nd consecutive year	2.0%
3rd consecutive year	3.0%

In other words, if land was liable for VRLT in the preceding tax year (ie. 1 January to 31 December 2024) but not the tax year preceding that tax year (ie. 1 January to 31 December 2023), a VRLT rate of 2.0% will be applied to the land from 1 January 2025.

Furthermore, if land was liable for VRLT in the last 2 preceding tax years (ie. 1 January to 31 December 2023 and 2024), a VRLT rate of 3.0% will be applied to the land from 1 January 2025.

4) Launching a trial to enforce VRLT, rather than rely on self-reporting

The Victoria Government will also launch a trial for a new enforcement system across metropolitan Melbourne, rather than relying on self-reporting and landowners. The trial, to be led by the Victorian State Revenue Office (SRO), would use utility data (ie. electricity and water usage) to identify homes that are not being used.

This would mean landowners identified by the SRO with potentially vacant properties would be asked provide proof that people live at their residence during the relevant calendar year.

The trial is proposed to start in 2024 with apartment towers and expand in 2025 to include inner and middle suburbs of Melbourne.

Please do not hesitate to contact your Lowe Lippmann Relationship Partner if you wish to discuss any of these matters further.

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