Amendments to the Vacant Residential Land Tax: What You Need to Know

Written by Julie Barkla, Kathleen Jess and Stephen Tsaketas.

In 2017, the Victorian State Government introduced the vacant residential land tax (“the VRT”), which aimed to address the lack of housing supply in Victoria. On 3 October 2023, the State Taxation Acts and Other Acts Amendment Bill 2023 (“Amendment Bill”), was introduced into the Victorian Legislative Assembly. The Amendment Bill proposes several changes to the Land Tax Act 2005 (“the Act”) relating to the VRT.

  1. The current VRT system

The VRT is a yearly tax imposed on land containing a residence which is located within metropolitan Melbourne, and which has been vacant for more than 6 months in the preceding calendar year. Residential land is considered vacant if it has not been resided in by the owner, a permitted occupant or a person under a lease or short-term letting arrangement in good faith. The VRT is set at 1% of the capital improved value of the taxable land. Accordingly, a residential property valued at $1 million, for instance, would accrue $10,000 in VRT for that calendar year.

  1. Proposed amendment – Expanding the application of VRT

The Amendment Bill repeals and replaces the original provision in the Act that limits the application of the VRT to land within metropolitan Melbourne, and instead imposes the VRT on all taxable land in Victoria, subject to exceptions. This expansion of the application of the VRT is proposed to commence from 1 January 2025. From this date, all owners of vacant homes located in Victoria will be subject to the VRT. Owners of properties subject to the VRT will be required to notify the State Revenue Office of the occupation status of their property prior to 15 January of each year. Failure to meet these notification requirements may result in the owner being liable for penalties.

  1. Proposed amendment – Extending the definition of “vacant residential land”

The Amendment Bill also extends the definition of vacant residential land to include certain unimproved land (i.e. vacant land) in metropolitan Melbourne that was previously outside the scope of the VRT. Land that is not primarily used for or developed for a non-residential use will still be regarded as residential land and subject to the VRT if it is located within the specified municipal districts of metropolitan Melbourne. This expanded definition will commence from 1 January 2026. This new category of residential land will only be considered vacant, for the purposes of the VRT, if it has remained vacant land for more than 5 years. Accordingly, residential land that falls within this category and has been vacant since the 2021 calendar year will be subject to the VRT from 1 January 2026. This proposed amendment aims to discourage long-term land banking whilst also providing a period of 5 years for property owners to commence construction.

  1. Proposed amendment – Introducing new exemptions

The Amendment Bill also establishes two categories of vacant residential land that are exempt from the VRT:

    • Land which is contiguous to and enhances a person’s principal place of residence, and is used solely for the private benefit and enjoyment of said person (e.g. land used for a swimming pool or tennis court); and
    • Land that the Commissioner is satisfied cannot be used or developed for residential purposes.

If you or your family owns a residential investment property, holiday home, or vacant land, and you are unsure of its status, please contact Julie Barkla on 0412 003 221 Or Kathleen Jess on (03) 9612 7212 to discuss your obligations.