Government announces expansion of vacant residential land tax in Victoria
09/10/2023
As part of the State Taxes Acts and Other Acts Amendment Bill that has been introduced to Parliament, the Allan government is set to expand the Vacant Residential Land Tax (VRLT) from 1 January 2025 to apply statewide. Currently, the VRLT applies to only inner and middle suburbs of Melbourne.
VRLT will continue to be payable at 1% of capital improved value of residential property that has been vacant for at least 6 months in a calendar year. The change will take effect from 1 January 2025, effectively capturing land which is vacant for more than 6 months during 2024. VRLT will also expand to apply to residential land that remains undeveloped for five years or more from 1 January 2026.
The existing exemptions for holiday homes and properties being renovated will remain in place. Developers that currently hold vacant land will receive a two-year extension, if they have received a building permit in the initial five-year period in which the land is vacant.
The State Revenue Office (SRO) will have the power to extend the five-year period in certain circumstances that are beyond the control of the developer. The SRO will also have considerable discretion to determine exemptions.
Underlying reasons for the changes
These changes come as part of the government’s push to meet its target to build 80,000 extra homes per year.
The changes look to put pressure on Victorian owners of vacant homes and land to make the homes available for rent or sale and develop vacant land. This much was confirmed in Treasurer Tim Pallas’ speech to the Property Council in which he stated that the “clear message to landowners is to either develop land or sell it to someone who will”.
Impacts
The impacts of the current and new measures are outlined as follows:
| Current | New | |
|---|---|---|
| Homes captured | Approximately 900 homes captured under the VLRT. | An additional 700 homes to be captured in the state-wide expansion. |
| Undeveloped properties | Approximately 3000 to be captured in the expansion |
In focus
Statewide expansion from 1 January 2024
- references to a ‘specified geographic area’ will be removed from the Land Tax Act 2005, allowing the VRLT to be expanded to include all vacant residential property statewide
- the current exemptions will still apply
- the tax rate will remain at 1 per cent.
Undeveloped land from 1 January 2025
The VRLT will apply to vacant residential land that has been vacant for 5 years or more if the land is:
- within a municipal district of a Council listed in the new Schedule 2B (essentially all Melbourne Metropolitan local government areas), and
- within a zone other than a ‘non-residential zone’ (these are based on AVPCC numbers specified in the Bill), and
- not solely or primarily used for or under development for a non-residential use.
This 5-year period will apply in instances where the land has had the same ownership during the 5 year period.
Land is under development for a non-residential use if:
(a) an application is made for a permit 10 under the Planning and Environment Act 1987 in relation to the use or development of the land for a non-residential use; or
(b) a request is made under the Planning and Environment Act 1987 for an amendment to a planning scheme that would authorise a non-residential use of the land; or
(c) an application is made for a permit or 20 approval under the Building Act 1993 in relation to the use or development of the land for a non-residential use.
Exemptions from the VRLT is available for:
- land contiguous to land used as a principal place of residence where it has the same owner
- land that cannot be developed for residential purposes due to its physical attributes, or where a matter prohibits lawful use or development, such as a restrictive covenant or environmental orders.
Commissioner discretion
- The Commissioner of State Revenue will be granted significant discretion to grant exemptions from VRLT if:
- Land is intended to be solely or primarily used or developed for non-residential use; and
- There is an acceptable reason for the land not yet being used or developed in that way.
- The Commissioner has the power to determine that land is ‘not vacant’ if a residence is to be constructed and there is an acceptable reason that this has not commenced.
- The Commissioner may impose the VRLT under its discretion if the land is deemed to have been transferred with the intention of receiving a reduction or exemption.
Full details are outlined in the Bill which is currently before parliament and the accompanying Explanatory Memorandum. Debate on the Bill will resume later this month, with it being likely that the Bill moves to the Legislative Council in November.
How SW can help
Reach out to our state taxes experts if you would like to discuss the potential impact of these changes on your current or future property or land holdings. The SW team can also assist with applying to the Commissioner for exemptions, where applicable.
