Understanding the Vacant Residential Land Tax (VRLT)
The Vacant Residential Land Tax (VRLT) represents a significant consideration for property owners in Victoria, designed to improve housing affordability by incentivising the use or development of vacant residential properties. Below, we delve into the essentials of VRLT, detailing its scope, criteria, forthcoming changes, and key exemptions. Property owners are encouraged to consider how these aspects might impact their investments and to seek tailored advice for their specific circumstances.
Introduction to VRLT
Initiated in 2017, the VRLT aims to increase the availability of residential properties for rent or purchase, initially targeting vacant land within designated areas of Melbourne. However, impending expansions to the tax's applicability and rates underscore its growing relevance to a broader audience of property owners.
Expanding Scope and Rates
Broader Applicability: Starting from 1 January 2025, the VRLT's reach will extend to encompass all residential land across Victoria, marking a significant shift from its initial focus areas.
Incremental Rate Increases: For properties that remain vacant over consecutive years, the VRLT rate will progressively increase, beginning at 1% of the capital improved value (CIV) for the first year, and rising to 2% and 3% for the second and third years, respectively.
VRLT Criteria
The tax specifically targets residential properties that remain vacant for more than six months within a calendar year. Exemptions apply to properties serving as the owner's principal place of residence (PPR), land used primarily for agricultural production, and properties utilised for business purposes for a minimum of 140 days per year.
Key Exemptions and Conditions
Holiday Home Exemption: Properties used as holiday homes for over four weeks a year may be exempt from VRLT, provided the owner maintains a separate PPR.
Implications for Family Trusts and Companies: Presently, properties held in family trusts or companies are not eligible for the Holiday Home Exemption, though legislative updates are anticipated to address this.
Leasing and Ownership Strategies
Leasing as a Strategy: To avoid VRLT, leasing vacant property for over six months is a viable strategy, as long as the leasing agreement complies with arm's length conditions and the Residential Tenancies Act.
Ownership Transfer Considerations: Transferring property ownership from a trust to an individual could circumvent VRLT but may involve significant tax, duty, and transaction costs.
Looking Ahead: 2026 Changes
From 2026, a new category for unimproved land will come under the VRLT umbrella, introducing a 5-year window for development before such land is deemed vacant.
Seeking Expert Advice
The evolving landscape of VRLT presents both challenges and opportunities for property owners in Victoria. Given the complexities and potential financial impacts of the VRLT, property owners should obtain expert legal and tax advice to navigate these changes effectively.
General Advice Warning:
Any general advice on this page does not take account of your personal objectives, financial situation and needs, and because of that, you should, before acting on the advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. Information contained on this page was correct at the time of posting.