Changes to Vacant Residential Land Tax for Properties in Regional Victoria: What You Need to Know
As of 1 January 2025, significant changes to the Vacant Residential Land Tax (VRLT) will take effect across regional Victoria. Property owners in these areas need to be aware of these adjustments, as non-compliance can lead to hefty penalties. Understanding the new rules and how they may impact your property holdings is essential to avoid unnecessary tax liabilities.
What is the Vacant Residential Land Tax?
Introduced in 2018, the Vacant Residential Land Tax was initially aimed at discouraging property speculation in Melbourne by taxing owners of vacant residential properties. Its main purpose is to ensure that properties are being used to meet housing demand, rather than being kept empty as investment assets. This tax applied to properties within the Melbourne metropolitan area, but the scope is now expanding.
Changes to the VRLT in Regional Victoria.
From 1 January 2025, the Victorian Government will extend the Vacant Residential Land Tax to certain properties located in regional Victoria. Previously, the tax was only applicable within metropolitan Melbourne. These changes mean that owners of vacant residential properties in many regional cities and towns will now be subject to the VRLT.
How much is VRLT?
From 1 January 2025, a progressive rate of VRLT applies to non-exempt vacant residential land across all of Victoria. VRLT is calculated on the capital improved value (CIV) of taxable land. This is the value of the land, buildings and any other capital improvements made to the property as determined by the general valuation process. It is displayed on the council rates notice for the property.
The rate of VRLT is based on the number of consecutive tax years the land has been liable for VRLT and is:
1% of the CIV of the land for the first year the land is liable for VRLT where the land was not liable for VRLT in the preceding tax year
2% of the CIV of the land where the land is liable for VRLT for a second consecutive year
3% of the CIV of the land where the land is liable for VRLT for a third consecutive year.
Who will it apply to?
The tax applies to properties that are vacant for more than six months in a calendar year, and the vacant land can be either a single property or a combination of properties owned by the same person. The VRLT aims to increase the availability of residential housing by encouraging owners to either rent out their properties or put them to productive use.
VRLT will apply to all properties in Victoria that do not satisfy the relevant occupancy threshold. The occupancy thresholds are:
28 days per year for holiday houses
6 months per year for all other properties.
For 2025 year assessments, VRLT is based on the occupancy status of the property in the 2024 calendar year.
Many Victorian landholdings will have recently received a letter from the State Revenue Office of Victoria requiring them to certify (via the online VRLT portal) whether any of their property holdings have been occupied for less than 6 months during the 2024 calendar year.
If the property has been occupied for 6+ months:
If a landholder owns a property that has been occupied for at least 6 months of the 2024 calendar year, it is not necessary for the landholder to undertake any further action.
If the property has NOT been occupied for 6+ months:
If the landholder owns a property that has not been occupied for at least 6 months during the 2024 calendar year, the property owner is required to notify the State Revenue Office of Victoria (via the online VRLT portal). This is the case even if the landholder uses the property as a holiday house and is able to claim an exemption from VRLT on the basis that they occupied the holiday house for at least 28 days in the 2024 calendar year.
Key Changes to Be Aware of:
Expanded Coverage:
The tax will now apply to vacant properties not just in metropolitan Melbourne, but also all residential land anywhere in Victoria if the land is vacant in the preceding calendar year, unless an exemption applies.
Increased Scrutiny:
The government will implement stricter reporting requirements for property owners. You will be required to submit annual declarations about the occupancy status of your property via the online VRLT portal to confirm whether it is being used for residential purposes. If the property is found to be vacant for more than six months during the calendar year, the tax will apply.
Exemptions:
There are exemptions to the tax, but they are limited. Exemptions may include cases where the owner is in aged care, the property is undergoing major renovations, or the property is temporarily vacant due to other legitimate reasons. It's essential to understand the criteria for these exemptions, as they must be substantiated with appropriate documentation.
4. Notification due date
Owners are required to notify the SRO by 15 January 2025 if you own residential land anywhere in Victoria with a home on it that was capable of being used for residential purposes but was unoccupied for more than 6 months in 2024.
Owners are required to notify the SRO via email if you own residential land in inner and middle Melbourne with a residence that was under construction or renovation, or that was uninhabitable, for 2 years or more as at 31 December 2024.
Higher Penalties for Non-Compliance:
Fines for non-compliance with the VRLT can be steep, and failure to meet reporting requirements can lead to penalties. Property owners who don’t declare their property’s status or fail to pay the tax on time could face substantial fines of up to 90% of the primary tax, in addition to the tax owed.
Tax Rates and Payments:
From 1 January 2025, the rate of VRLT will increase, based on the number of consecutive tax years the land has been liable for VRLT up to 3% of the CIV, up from the flat 1% of CIV that was applicable from 1 January 2018 to 31 December 2024.
How to Minimize the Impact of the VRLT:
To avoid any unwelcome surprises in your tax bill, it’s vital to take proactive steps now:
Review Your Property Portfolio: If you own vacant properties in regional Victoria, assess whether they meet the VRLT criteria. Consider renting them out or using them for residential purposes to avoid the tax.
Track the Usage of Your Properties: Ensure accurate records of your properties' occupancy throughout the year. If a property remains vacant for six months or more, be prepared to report this accurately.
Seek Professional Advice: Given the complexity of tax laws and the implications for property owners, at DGF Advisory, we can help ensure compliance with the new regulations, identify any potential exemptions, and help manage your tax obligations effectively.
Prepare for Future Changes: The Victorian Government has been expanding its focus on housing availability and land use. Stay informed about any further changes to property-related taxes and regulations, which could have an impact on your investment strategy.
If you'd like to know more about how these changes will impact you, please don't hesitate to reach out to us.
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