Navigating Victoria's Land Tax

Navigating Victoria's Land Tax

Victoria's land tax system has undergone significant changes in recent years, with increases in land tax rates and the expansion of the Vacant Residential Land Tax (VRLT). Understanding these changes is crucial for property investors and homeowners who want to minimize their tax liability while complying with state regulations.

Recent Increases in Victoria's Land Tax

As part of the Victorian Government’s efforts to generate revenue, land tax rates have increased for high-value properties. These changes particularly impact investors and owners of multiple properties, as tax thresholds have been adjusted and new surcharges introduced.

For example, from 2024, land tax rates have been revised, affecting properties with a total taxable value above certain thresholds. Additionally, there have been increases in the Absentee Owner Surcharge, which applies to foreign property owners.

The Expansion of the Vacant Residential Land Tax (VRLT)

The Vacant Residential Land Tax (VRLT) was initially introduced in 2018, targeting unoccupied properties in Melbourne’s inner and middle suburbs. However, from 1 January 2025, the VRLT will apply across all of Victoria. The tax rate will now increase progressively based on how long a property has remained vacant:

• 1% of the capital improved value (CIV) for the first year of vacancy
• 2% of the CIV for the second consecutive year
• 3% of the CIV for the third consecutive year

This means that the longer a property remains unoccupied, the higher the tax burden on the owner. The aim of this policy is to encourage owners to rent or sell vacant properties, thereby increasing housing supply.

When Does the VRLT Apply?

The VRLT applies to residential properties that remain unoccupied for more than six months in a calendar year. The tax is assessed based on the property’s capital improved value (CIV), which includes both the land and any buildings on it.

Some key points to consider:

• Properties used as a principal place of residence are exempt.
• Holiday homes used for at least 4 weeks per year by their owners may qualify for an exemption.
• Properties undergoing significant renovations or new developments may be exempt.
• From 2025, vacant land that has been unimproved for more than five consecutive years will also be subject to VRLT.

How to Avoid or Minimize VRLT

To avoid paying the vacant residential land tax, property owners should consider the following strategies:

• Renting Out the Property: Leasing the property for at least six months per year will exempt it from VRLT.
• Short-Term Stays: If the property is used as a holiday home, owners should ensure they meet the minimum usage requirements.
• Active Development: If planning to build or renovate, owners should apply for exemptions based on construction progress.
• Strategic Sales: Selling vacant land or underutilized properties before they attract VRLT can help investors reduce their tax liability.

Conclusion

With the recent increases in land tax and the expansion of VRLT, Victorian property owners need to stay informed about their obligations. By understanding the new rules and making strategic property decisions, investors and homeowners can minimize their land tax burden and ensure compliance with the latest state regulations.