ALERT – Significant changes to the Vacant Residential Land Tax provisions

On 30 November 2023, The Victorian Parliament passed the State Taxation Acts and Other Acts Amendment Act 2023 (Act) which makes several amendments to Victoria’s taxation laws, including:

• expanding vacant residential land tax to all vacant residential land in Victoria from the 2025 tax year, subject to applicable exemptions; and
• expanding the definition of vacant residential land to include unimproved residential land that has been unimproved for 5 years or more in established areas of metropolitan Melbourne from the 2026 tax year.

The provisions in the Act relating to vacant residential land tax, commence more than 12 months after its passing in order to provide certainty as to the status of land for vacant residential land tax purposes and to provide landowners affected by these changes adequate time to take steps to prepare their land for development for residential purposes.

The move is an attempt from parliament to increase Victoria’s housing supply. The message is directed at landowners to encourage them to either develop the land or make residential properties available for purchase or rent.

Refresher – what is Vacant Residential Land Tax?

Vacant residential land tax currently applies to homes in the inner and middle suburbs of Melbourne that have been vacant for six or more months in the preceding calendar year.

This annual tax is set at 1% of the capital improved value (CIV) of taxable land. You can find your CIV on the council rate notice for the property.

Exemptions

Exemptions for vacant residential land tax include the following:

• Property that changed ownership during a calendar year are exempt from the tax in the following year.
• Property that became residential land during a calendar year is not subject to the tax in the following year. For example, a warehouse that was converted into residential apartments in 2023, would be exempt from the tax in the 2024 year.
• Property that is a holiday home – The holiday home exemption applies to a property used and occupied by the owner, or members of their family, as their holiday home (a second home) for at least four weeks (whether continuous or aggregate) in a calendar year. Keep in mind that you may only claim one holiday home exemption per calendar year.
• Property used and owned for work purposes. This property must be occupied for at least 140 days in a calendar year.
• Residential properties that are under construction or renovation. Homes will not be considered vacant for up to two years from the date a building permit for construction or renovation was issued.

Key takeaways

1. Vacant residential land tax to apply to all residential land in Victoria vacant for over six months, commencing 1 January 2025.
2. From 1 January 2023, vacant residential land is to include undeveloped land in Metropolitan Melbourne that has not been developed for 5 years.
3. Some exemptions apply.