The Victorian Government has released Treasurer’s guidelines outlining limited circumstances where the Commissioner may exercise discretion to exempt landowners from VRLT if construction has not commenced due to acceptable reasons. 

What is VRLT and how has it evolved? 

Vacant Residential Land Tax is an annual tax which was introduced by the Victorian Government from 1 January 2018 to address the lack of housing supply by encouraging landowners to make their vacant residential properties available for purchase or rent.   

From 1 January 2018 to 31 December 2024, VRLT only applied to vacant residential land in Melbourne’s inner and middle suburbs. The residential land was vacant where the land was not used or occupied for more than 6 months in the year. VRLT was calculated as an annual tax of 1% of the capital improved value (CIV) of the land.  

Effective 1 January 2025, the State Taxation Acts and Other Acts Amendment Bill 2023 introduced: 

There are also a number of exemptions from VRLT available to taxpayers. Where the property is exempt from land tax, it is also exempt from VRLT. Several specific exemptions are also available, namely for holiday homes, work accommodations and new residential land.  

Upcoming changes effective 1 January 2026 

From 1 January 2026, the Victorian Government has further expanded the scope of VRLT, now applying to unimproved land in metropolitan Melbourne if it is: 

The 5-year undeveloped period applies retrospectively, so land owned since 31 December 2020 or earlier may be liable to VRLT.  

Landowners may apply to the Commissioner to exercise his discretion to extend the 5-year period where construction has not commenced for acceptable reasons. The Guidelines released by the Treasurer outline the acceptable reasons.  

Recent guidelines – construction delays 

On 17 November 2025, the Victorian Government released guidelines outlining the acceptable circumstances where construction of a residence on the land has not yet commenced. 

Residential land on which construction of a residence has not commenced after five years is considered not vacant at the Commissioner’s discretion, if a landowner: 

The guidelines set out circumstances where land is not considered vacant, including: 

The Guidelines state that the following factors would not generally support a favourable decision by the Commissioner: 

This is unhelpful for many developers, as these challenges present barriers to progressing the development of the land. 

How SW can help 

If you own land which comes under the scope of VRLT, you must notify the State Revenue Office (SRO) by 15 February 2026. 

Our experts at SW can assist with reviewing your circumstances, advising on VRLT implications, supporting VRLT reviews, and managing applications for exemptions and the Commissioner’s discretion. For support, please reach out to your SW advisor. Our team is ready to help you navigate these changes with confidence. 

Contributor

Dylan Kelly

The post Unimproved land subject to Vacant Residential Land Tax from 1 January 2026 appeared first on SW Accountants & Advisors.

The Government has delivered on its promise to extend the VRLT holiday home exemption in relation to land held by companies and trusts. Companies and trusts which held a family holiday home before 28 November 2023 will be able to access the exemption in substantially the same way as individuals under the State Taxation Amendment Bill 2024 currently before Parliament.

Any action needs to urgently be considered and implemented well ahead of 31 December 2024 to ensure the desired outcome in the next round of assessments.

Recap on Vacant residential land tax (VRLT)

For residential land across all of Victoria

The VRLT is:

• a yearly property tax imposed on residential properties in Victoria that are deemed ‘vacant’ for more than six months in a calendar year
• it currently applies to land in inner Melbourne areas but from 1 January 2025 it will apply to residential properties throughout Victoria
• it is in addition to any state land taxes and federal annual vacancy fee that are payable
• currently at 1% of the capital improved value of the land and can rise to 3% where the land is liable for VRLT three years in a row.  

Owners are required to notify the SRO by 15 January if they own residential land that has been vacant for more than 6 months in the preceding calendar year.

Unimproved residential land

From 1 January 2026, VRLT will apply to all unimproved residential land in metropolitan Melbourne that has remained undeveloped for at least 5 years and is capable of residential development.

What is the change to the Holiday home exemption?

The exemption for holiday homes under VRLT has been the most topical with our clients. Prior to the Bill, the holiday home exemption was largely available only to individual home owners, not including properties held by trusts and companies. This caused significant concern among property owners as it is common to hold holiday homes through companies and trusts for asset protection and other purposes.

The amendments proposed under the Bill should rectify the current issue and provide Victorian property owners some welcomed relief, however it may only provide limited relief to holiday homes held through companies and unit trusts due to the drafted eligibility criteria.

Eligibility criteria for companies and trusts

For companies and trusts that own holiday homes in Victoria, an exemption from VRLT is available if the following conditions are met:

1. The owner held the holiday home on 28 November 2023, or acquired the property after that date under a contract which was entered into on or before 28 November 2023, and the owner has continuously held it since that time
2. There has been no change in the shareholding or beneficial interest in the land owner since 28 November 2023, unless the change involves persons who are relatives of one another
3. There needs to be a minimum ownership interest of 50% in land owning companies or unit trusts by one or more individuals who have another property in Australia that they use and occupy as their principal place of residence (PPR). For a land owning family discretionary trust, a specified beneficiary or a relative must have used and occupied other land in Australia as a PPR.     
4. The land has been used and occupied as a holiday home for a period of at least 4 weeks in a calendar year by an individual referred to in paragraph c.
5. The Commissioner of State Revenue is satisfied that the land is used and occupied as a holiday home, taking into account the location of the land, the distance between the land and the PPR of the relevant individuals and the nature and frequency of the use of the land.

Challenge for homes held through companies and unit trusts

The challenge for holiday homes held in companies and unit trusts is that to qualify for the exemption, at least 50% of the shares in the company or units in the trust needs to be held directly by an individual. Generally, shares or units are held through discretionary trusts, rather than directly by the individual. Therefore, these companies and unit trusts would not be eligible for the exemption. The Property Council of Australia has notified the Government of this limitation in hopes that Government will review this position.

Contiguous land

For owners eligible for the holiday home exemption, they could also receive an exemption from VRLT for any land that they own that is adjoining to the holiday home and used solely for the private benefit and enjoyment of the person who uses and occupies the holiday home (for example, tennis courts and swimming pools). This exemption is relevant for owners with holiday home and contiguous land (on separate title) located in metropolitan Melbourne because from 1 January 2025, vacant land within metropolitan Melbourne  left unimproved for 5 years or more becomes liable for VRLT.

How SW can help

Owners of holiday homes in Victoria should carefully consider the above changes and any appropriate actions to take full advantage of the relevant exemptions that are available. Any actions needs to urgently be considered and implemented well ahead of 31 December 2024 to ensure the desired outcome in the next round of assessments.

Our state tax experts can provide you with appropriate advice and assistance in relation to VRLT and any eligibility for exemption.   

Contributors

William Zhang

Robert Parker

The post Vacant residential land tax update – companies and trusts appeared first on SW Accountants & Advisors.

The recent Administrative Appeals Tribunal (AAT) case Meakins and Commissioner of Taxation [2023] AATA 3852 (Meakins), highlights its significance in the context of tax deductions for holding vacant land in Australia. The key tribunal findings emphasise the importance of several critical factors including assessment of income-generating intent, the lack of substantial activity and implications of inaction. The ruling reinforces that expenses related to vacant land are not typically deductible unless the land is used for income-generating purposes. 

Background

The taxpayer purchased vacant land at North Fremantle in 2006. Initially, there was a clear intent to develop this land, transforming it into an income-generating asset.

Despite these initial plans, the development of the property did not proceed but the taxpayer continued to claim deductions for holding costs. The taxpayer attributed this inaction to changing economic circumstances that affected the ability to move forward with the development. As the years passed, these circumstances, combined with other unforeseen challenges, led to the property remaining largely undeveloped and unused.

This lack of tangible development activity raised significant questions from the tax authorities about the legitimacy of the tax deductions claimed for holding the property. The AAT agreed with the Commissioner that the interest expenses were not deductible.

Key issues and tribunal findings

The tribunal’s decision hinged on several critical factors:

• Assessment of income-generating intent: A pivotal aspect of the tribunal’s decision was assessing the taxpayer’s intent for income generation. The tribunal scrutinised the nature of expenses incurred, investigating whether they were legitimately aimed at producing assessable income or were merely veiled as part of a business operation. This scrutiny was crucial, as tax law requires a direct link between the expense and the income-producing activity. This case highlights that taxpayers must demonstrate a clear and direct connection between the expenditure on vacant land and their efforts to generate assessable income, such as active steps towards development or concrete plans for business use.

• Lack of substantial activity: The tribunal expressed significant concerns over the absence of meaningful development or use of the property for income generation over 17 years. This prolonged period of inactivity was a key factor in casting doubt on the legitimacy of the claimed deductions. The case underscores the importance of active engagement and development efforts in property investment to substantiate claims for tax deductions. The tribunal’s focus was not just on the intent to generate income but also on the tangible actions taken towards this objective. This serves as a reminder that mere ownership of property, without substantial and active efforts towards its income-producing use, is insufficient to justify tax deductions for holding expenses.

• Implications of inaction: The extended period of inaction raised significant questions about the trust’s true intent behind holding the land. The tribunal examined the absence of concrete actions towards developing or using the property for income generation, contrasting this with the claim for deductions. This inaction was seen as indicative of a lack of serious commitment to using the property for income-producing purposes.

This highlights that in the realm of tax law, intentions must be backed by actions. Taxpayers must be mindful that inactivity or lack of substantial effort in developing or using their property can undermine their claims for tax deductions and invite scrutiny from tax authorities.

Implications for taxpayers

The Meakins case echoes the sentiments expressed in ATO Ruling TR 2023/3, particularly regarding the deductibility of expenses for vacant land. The ruling emphasises that expenses related to vacant land are not typically deductible unless the land is used for income-generating purposes. 

Whilst the case addresses an interest deduction claimed before the introduction of Section 26-102, the decision serves as a crucial reminder for taxpayers holding vacant land (where deductions can still be obtained) for the need of a clear demonstration of income-generating intent and activity when claiming deductions on vacant land. Taxpayers must ensure that their investment strategies align with tax laws to avoid disputes and penalties.

Actions required

• Review current holdings:
  • Assessment of vacant land holdings: Conduct a thorough review of your current vacant land holdings. Assess each property, taking into consideration the Meakins case and the ATO Ruling TR 2023/3, to understand how these legal precedents impact your ability to claim deductions.
  • Analysis of development plans: For each holding, evaluate the status of any development plans or activities. This includes reviewing timelines, actions taken, and any delays or changes in plans.
• Documentation: Having detailed and organised records that clearly demonstrate the purpose and use of the land is always useful.

Keeping abreast of these rules and seeking professional advice can save both time and money, helping to avoid potential pitfalls down the line. 

Get in touch with SW

Our expert team here at SW is here to guide you every step of the way. Please reach out if you need support or have any questions.

Contributors

Rahul Sanghani

The post Navigating tax implications of holding vacant land appeared first on SW Accountants & Advisors.

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:

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.

Contributors

Robert Parker

Blake Trad

The post Government announces expansion of vacant residential land tax in Victoria appeared first on SW Accountants & Advisors.

Summary

Section 26-102 of the Income Tax Assessment Act 1997 denies land holding cost deductions where there is no substantial and permanent structure in use or available for use on the land. Various exceptions apply, including where the land is in use for carrying on a business, or the taxpayer is a company. Ruling TR 2023/3 clarifies the ATO’s view on Section 26-102 and provides examples to illustrate its application.

The main points of this ruling are:

• deductions are permissible only when the land is actively used in income-generating business activities or meets specific criteria, such as having a substantial and permanent structure.
• the structure must be in use or available for use.  Residential premises constructed or substantially renovated must be lawfully able to be occupied and this would occur when the certificate of occupancy is received
• various exceptions are provided, including for corporate entities and certain trusts
• property developers would typically be carrying on a business – however not always where the land is owned in a Special Purpose Vehicle (SPV)
• the relevant area of land for the purposes of section 26-102 is determined by the area that the relevant loss or outgoing relates
• the timing of expenses and income-earning activities is important in determining the deductibility of interest expenses.

Key Concepts

Structure in use or available for use

Section 26-102 specifies that deductions are permissible only when the land is actively used in income-generating business activities or meets specific criteria, such as having a substantial and permanent structure. A substantial and permanent structure is one that is fixed to the land and has a degree of durability and permanence. Examples of such structures include buildings, sheds, silos, windmills, and solar panels.

Carrying on a business and property developers

Section 26-102 does not apply where the taxpayer is using the land in carrying on a business. The Ruling states that whether activities on the land amount to ‘carrying on a business’ is a question of fact’.  Property developers will generally not be affected by Section 26-102 provided they are carrying on a business.  Land held by a developer for future development would be considered ‘available for use’. 

However, where land is held in an SPV (with no other activities), special consideration should be given to whether the SPV is carrying on a business. 

Relevant Area and multiple titles

The Ruling provides some practical guidance where holding costs relate to:

• Only a portion of the land under a single title, or
• Across multiple titles

Where the holding costs relate to only part of the land under a property title then for the purposes of determining if there is a substantial and permanent structure on the land, it is sufficient that such a structure exists somewhere on that part of the land. The structure does not need to take up all of that part of the land or all the land under the property title.

Where the holding costs relate to land held under multiple titles, the Ruling states that it will be sufficient where a substantial and permanent structure exists somewhere on the area of land to which the loss or outgoing relates.

Implications

The deductibility of holding costs becomes more complex for non corporate taxpayers.

Individuals may find their ability to claim deductions for holding costs like property taxes and loan interest limited, depending on the land’s usage. The ruling narrows the scope for claiming these deductions, making the land’s actual usage a pivotal factor.

Companies have a distinct advantage when it comes to deductions for holding vacant land. Corporate tax entities are generally exempt from limitations on claiming deductions for holding costs of vacant land during the income year in which the loss or outgoing is incurred. This exemption provides these companies with greater flexibility in their tax planning strategies, allowing them to optimise their tax position while holding vacant land for business purposes.

When vacant land is held in a SPV the situation becomes complex. If the SPV is not a company (or owned by companies), the SPV must meet specific criteria to be eligible for deductions, such as actively using the land or making it available for use in a business. Failure to meet these criteria could result in the SPV being ineligible to claim deductions for holding costs, which could have significant tax implications.

Example: Holding Land in a Company vs. a Discretionary Trust

The following table compares the situations of holding land in a company versus a discretionary trust:

Actions required

1. Review Current Holdings: Examine your vacant land holdings to assess how the ruling impacts your ability to claim deductions
2. Analyse Business Activities of land owners (particularly SPVs): Determine whether you are entitled to rely on the carrying on a business exemption and whether SPVs would qualify
3. Documentation: Ensure proper documentation is in place to substantiate any claims for deductions
4. Strategic Planning: Re-evaluate your long-term investment or business strategies in light of this ruling and make necessary adjustments.

How SW can help

Understanding the application of TR 2023/3 is essential for anyone holding or planning to hold vacant land. Keeping abreast of these rules and seeking professional advice can save both time and money, helping to avoid potential pitfalls down the line.  Our expert team is here to support you every step of the way.

Contributor

Rahul Sanghani

The post ATO Ruling TR 2023/3: Impact on deductibility of holding vacant land expenses appeared first on SW Accountants & Advisors.