The Victorian real estate landscape is undergoing a significant transformation with the implementation of the State Taxation Acts and Other Acts Amendment Bill 2023, effective January 1, 2024. Recent parliamentary negotiations resulted in a revised bill that introduced various amendments, notably impacting the ‘vacant residential land tax’ (VRT) regime. The changes to the VRT aimed to ‘help ease pressure on rents and prices and free up available housing stock’ and hold particular relevance for residential rental providers, investors, and homeowners across the state.
Cath Stubbings, Director of Property Management at Kay & Burton, emphasised the potential impact of these reforms on rental affordability: “The issue of housing affordability remains acute across the whole of the state. These changes are designed to encourage property owners holding vacant properties to contribute to alleviating the rental crisis by making their homes available for occupancy. However, for many property owners and investors these taxes can feel like another way the government is impacting their property choices and decisions. For owners who decide to rent out their vacant home rather than incur the VRT, they can take heart that rental prices are rising and producing strong returns, Ms Stubbings said.
Expanding VRT
The current VRT applies to vacant homes in specific council areas that were unoccupied for more than six months in the previous calendar year. The tax is set at 1 per cent of the capital improved value (CIV) of taxable land. The recent amendments propose a three-fold expansion of this regime, each change aimed to enhance the housing supply and alleviate rental pressures.
- Geographic expansion: The geographic restrictions on VRT are set to be removed, extending its coverage to all relevant land throughout Victoria. This change, effective from January 1, 2025, aims to address the issue of vacant properties statewide. Previously, only properties in certain council areas were affected including Banyule, Bayside, Boroondara, Darebin, Glen Eira, Hobsons Bay, Manningham, Maribyrnong, Melbourne, Merri-bek (formerly Moreland), Monash, Moonee Valley, Port Phillip, Stonnington, Whitehorse and Yarra.
- Including unimproved land: The definition of ‘residential land’ will be broadened to include unimproved land meeting specific criteria for at least five years. This move, effective January 1, 2026, intends to incentivise the development of empty blocks in metropolitan Melbourne, ultimately increasing the housing supply.
- Increased VRT rate: Negotiations with the Greens resulted in an amended bill, introducing a progressive rate based on the number of consecutive tax years the land has been liable for VRT. The rate remains at 1 per cent of capital improved value for unimproved land but increases to 2 per cent in the second year and 3 per cent from the third year onwards. This aims to discourage prolonged vacancies and expedite property utilisation
While these changes take effect from January 1, 2025, it’s crucial to note that they are based on the occupancy status of premises from January 1, 2024. This approach allows landowners time to adapt to the new regulations, whether by occupying their residences, making them habitable, completing construction or renovation, or preparing land for residential development.
To understand more about the changes to VRT or to learn more about the additional changes to the Bill, please click here.
In compiling this article, Kay & Burton relied upon information supplied by several external sources. This article has been provided for general information only regarding the changes to Victorian property tax and must not be construed in any way as legal or financial advice. Although high standards have been used in the preparation of the information, analysis, views, and projections presented in this article, Kay & Burton does not owe a duty of care to any person in respect of the contents of this document and does not accept any responsibility or liability whatsoever for any loss or damage resulting from any use of, reliance on or reference to the contents of this article. If the reader has any legal or financial concerns regarding the changes to Victorian property tax, they are encouraged to consult with a legal or financial advisor.