In a bid to address the issue of vacant residential land, Victoria has introduced the Vacant Residential Land Tax (VRLT) starting from January 1, 2025. This tax aims to target land that remains vacant for more than 6 months in the preceding calendar year. Let’s delve into the details and understand the key aspects of this new tax regime.
VRLT Overview
The VRLT is designed to curb the issue of unused residential land by imposing a tax on vacant properties. From 2025 onwards, any residential land left unoccupied for more than 6 months in the previous year will be subject to this tax.
Progressive Rate Structure
A unique feature of VRLT is its progressive rate structure based on consecutive years of liability. The rates are as follows:
- 1% for the first year: If the land becomes liable for VRLT for the first time.
- 2% for the second consecutive year.
- 3% for the third consecutive year.
Expanded Coverage in Metropolitan Melbourne
From January 1, 2026, VRLT expands its reach to all unimproved residential land in metropolitan Melbourne that has remained undeveloped for at least 5 years and is capable of residential development.
New Exemptions Introduced
To balance the tax burden, exemptions have been introduced for:
- Contiguous Land to Principal Place of Residence (PPR): Unimproved residential land adjacent to a principal place of residence.
- Incapable Land: Unimproved land that cannot be used or developed for residential purposes.
Amendments to Holiday Home Exemption
As of January 1, 2025, the VRLT holiday home exemption has been revised. Now, the usage and occupancy requirement can be satisfied by a relative of the owner or vested beneficiary.
Extended Exemption for New Residential Premises
The VRLT exemption for new residential premises has been extended to allow a maximum exemption period of 3 years. If the property remains unoccupied and unsold after this period, it will be subject to a 1% VRLT until sold.
Land Tax and Windfall Gains Tax Apportionment
Effective January 1, 2024, land tax apportionment is prohibited between vendor and purchaser under a contract of sale of land, except for high-value transactions ($10 million or greater). Windfall gains tax cannot be passed on to a purchaser after the tax liability has been assessed.
Build-to-Rent (BTR) Special Land Tax
The Land Tax Act 2005 has been amended to ensure that the BTR special land tax formula aligns with the correct land tax rates and absentee owner surcharge rate.
Single Holding Land Tax Concession
Owners of charitable, municipal, public land, and nominated PPR beneficiaries of unit trust schemes and discretionary trusts are exempt from paying the fixed lump sum component of the COVID-19 debt temporary land tax surcharge more than once.
Reporting Changes for Foreign Purchaser and Absentee Owner Exemptions
The Duties Act 2000 and Land Tax Act 2005 now require reports on foreign purchaser additional duty and absentee owner surcharge exemptions to be tabled in Parliament every 12 months, rather than every 6 months.
Pensioner and Concession Card Holder Duty Reduction
The Duties Act 2000 has been amended to ensure that key eligibility requirements of the pensioner and concession card duty reduction scheme apply to all transferees in a property transaction.
Corporate Reconstruction and Consolidation Concessions
The Duties Act 2000 has been amended to enable the corporate reconstruction concession for sub-sale arrangements within the same corporate group, among other changes.
Windfall Gains Tax Amendments
The Windfall Gains Tax Act 2021 has undergone amendments to broaden exemptions for rezoning errors and clarify definitions related to excluded rezoning and charitable land.
Valuations of Land – Capital Improved Value
The definition of capital improved value in the Valuation of Land Act 1960 has been amended to include all items affixed to land, regardless of ownership or legal fixture status.
Fire Services Property Levy
Changes have been made to the Fire Services Property Levy Act 2012, moving various land use classifications from ‘Industrial’ to ‘Public Benefit,’ including Hydroelectricity, Wind Farm Electricity, and Solar Electricity Generation.
Statute Law Revision
The State Taxation Acts and Other Acts Amendment Act 2023 has corrected a reference in the Treasury Corporation of Victoria Act 1992.
Confused about how these tax changes may impact you? Contact Mark for expert advice
In conclusion, Victoria’s tax landscape is undergoing a significant transformation in 2025, with the introduction of VRLT and various amendments across different tax acts. Property owners, developers, and investors need to stay informed and adapt to these changes to navigate the evolving tax environment effectively. Official Source