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What’s changing with Vacant Residential Land Tax

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Vacant Residential Land Tax What Medical Professionals with Holiday Homes Need to Know

Recently the Victorian Government announced the expansion of Vacant Residential Land Tax (VRLT) to apply across Victoria, not just within certain metropolitan Melbourne areas.

As a medical professional or high-income earner, you’ll understand the importance of careful planning for your financial future. This might include strategically holding assets like investment properties and holiday homes in structures such as trusts. Recent changes to VRLT might have you questioning whether it will affect you and what you might need to do; so read on to learn what VRLT is, how it applies, who it applies to, and key dates to consider. 

Put simply, what does this tax mean? 

If you own a residential property that is not your primary place of residence (PPR) and the property is vacant, then it could be subject to VRLT. 

What is Vacant Residential Land Tax?

Introduced in 2017, VRLT applies to vacant residential land in Victoria. The policy reason given was to address housing affordability by encouraging owners to put vacant property back onto the property market. 

The tax applies if a property is:

  • Taxable: Most Victorian land is taxable, excluding your PPR.
  • Residential: The land is capable of being used solely or primarily for residential purposes. 
  • Vacant: not lived in for more than six months in a calendar year.

Properties can be considered vacant even if they’re furnished and ready for occupancy. The key is actual use for at least six months. 

Holiday Home Exemption

Properties may also be exempt from VRLT if they are used as a holiday home. To benefit from this exemption, the property must be used by you (or a relative) for at least 28 days throughout the calendar year. 

It is often advisable to keep records of your usage (power bills, receipts, photo GPS data, etc) for evidence if you are claiming the property is being used as a holiday home as this is a self assessment tax. 

How much is the tax?

The tax rate starts at 1% of the land’s capital improved value (land and buildings) in the first year and increases to 2% in the second year and then finally 3% for subsequent years of vacancy.

What’s Changing?

Previously, VRLT only applied to specific Melbourne council areas. As of 1 January 2025, it will apply across all of Victoria. Upon assessment, they will look at the previous 12 months of use which is why you may need to take action now. 

Holiday Home Exemption: Can Trusts Qualify?

Initially the Holiday Home exemption was not applicable to properties held in family or investment trusts. This has since been changed.

In summary, the Holiday Home Exemption will be expanded for properties held in discretionary trusts subject to the following criteria:

  1. The property must have been held on 28 November 2023 (or under a contract to purchase at that date) and been continuously held since that date;
  2. There has been no change in specified beneficiaries since 28 November 2023 (there is an exclusion if the change has been to add or remove relatives). A specified beneficiary is usually a beneficiary who is named in the trust deed. 
  3. A specified beneficiary or a relative of that person used or occupied other property in Australia as a PPR;
  4. In the year preceding the tax year, the property has been used and occupied as a holiday home for a period of at least 4 weeks by a specified beneficiary or a relative of that person (who meets the PPR requirement in paragraph 3);and
  5. The Commissioner is satisfied that the property was used and occupied as a holiday home in the year preceding the tax year. 

In considering whether the property was used as a holiday home, the Commissioner must have regard to:

  1. The location of the property;
  2. The distance between the location of the property and the PPR of a shareholder, unitholder, beneficiary or specified beneficiary (as the case may be); and
  3. The nature and frequency of the use of the property.

Note similar rules apply for Companies and Unit Trusts, however, 50% of the units must be held by a natural person who holds a PPR elsewhere, which will limit the benefit of the exemption. 

Taking Action

If you’re intending to use the property as a rental property, then you will need to have a lease in place by 1st July 2024 to qualify for the 6 month criteria within the 2024 year. 

We recommend booking an appointment to consult with your DPM consultant or a specialist lawyer such as Fletcher Clarendon to discuss your specific situation, assess whether you will be impacted, and evaluate your options.

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