Vacant Residential Land Tax (VRLT) In Victoria Explained

Vacant Residential Land Tax (VRLT) is an annual tax aimed at discouraging property owners from leaving residential properties empty for long periods.

To help tackle housing shortages, the tax was introduced in 2018 and originally only applied to vacant homes in inner Melbourne. From 2025, however, the VRLT was expanded across Victoria, meaning residential properties that are left unoccupied for more than six months of the year may be subject to the tax.

Overview of VRLT

Expanded Scope from 2025:

• The VRLT will apply to all residential properties across Victoria, not just those in inner and middle Melbourne.

New Tax Rates:

• Progressive tax rates based on the number of consecutive years the property remains vacant:
  • 1% of the Capital Improved Value (CIV) for the first year of vacancy.
  • 2% of the CIV for the second consecutive year.
  • 3% of the CIV for the third and subsequent consecutive years.

Definition of Vacancy:

• A property is considered vacant if it is unoccupied for more than six months in a calendar year, even if these are non-consecutive days.

Obligations for Property Owners under the VRLT

There is a notification requirement for property owners to notify the State Revenue Office (SRO) by 15 January each year if their property was vacant during the previous calendar year.

When does VRLT apply?

VRLT is assessed each year based on the previous year’s occupancy eg VRLT payable in 2025 is determined if there was a vacancy for more than 6 months in 2024.

“Vacant” generally means not occupied as a residence by the owner or a tenant for more than 6 aggregate months of the year. Even occasional use (like short stays) might not count as “occupied” unless it’s genuinely lived in. Important: VRLT currently only applies to residential properties – which includes land with a habitable dwelling, or land on which one can be built (like vacant lots in residential zones).

There are some exemptions:

Holiday homes were exempt under the original rules if they are occupied by the owner for at least 4 weeks a year.

New residential properties are exempt for the first two years after completion (to allow developers to find buyers/tenants). Properties in deceased estates have exemptions for a period, and homes under renovation or awaiting planning approval may get exemptions as well. Initially, VRLT applied only in inner and middle Melbourne council areas, but from 1 January 2025 it covers all of Victoria.

This tax requires landowners to be proactive as there is also a new notification requirement: owners of residential land that was vacant in the previous year must notify the SRO by 15 January each year. Failure to notify the SRO can lead to penalties and they do use multiple sources to check and it is advised that property owners keep records of when they are staying at the property.

Property owners should also be aware of the notification requirement. If a residential property was vacant during the previous calendar year, the owner must notify the State Revenue Office (SRO) by 15 February of the following year, even if they believe an exemption may apply. Failure to notify may result in penalties. As the SRO uses a range of data sources to verify occupancy, owners should keep adequate records demonstrating when the property was occupied. [sro.vic.gov.au], [sro.vic.gov.au]

Risks for property owners

The broadened scope means many more property owners need to be aware of VRLT. One risk is simply ignorance, the tax is substantial being 1% which if your property is worth $800,000 that equals $8,000 per year, doubling to $16,000 if it remains vacant into a second year.

To qualify for exemptions landowners need to understand the parameters of the tax and how to qualify for the exemptions and keep relevant records.

Landowners also need to be aware of their reporting obligations. The State Revenue Office (SRO) uses a range of data sources to identify potentially vacant properties, so failing to notify the SRO when required may result in penalties in addition to any tax payable.

Property owners who are planning to sell should also keep in mind that they may still be liable for VRLT in respect of periods during which the property was vacant before the sale.

It is also important to note that short-term accommodation arrangements, such as Airbnb, do not automatically exempt a property from VRLT. Whether a property is considered occupied will depend on the specific circumstances and the requirements of the legislation.

In addition, Victoria has introduced a separate Short Stay Levy on short-term accommodation bookings. While this is a different tax from VRLT, property owners should be mindful of both regimes when deciding how their property will be used.

As a result, owners should carefully consider how their property is used and ensure they maintain appropriate records to support any claim that the property was occupied or exempt from VRLT.

Disputes regarding Vacant Residential Land Tax

For owners who have vacant property and now face a large bill, a lawyer could assist in reviewing the assessment and perhaps arguing an exemption if something was overlooked.

If a dispute arises and you need to contest an assessment,legal advice is recommended.

Timing is key, you’d want to resolve it within the year if possible, to avoid the higher rate next year.

State tax lawyers help to compile the evidence and draft a comprehensive response to ensure the legal criteria for exemptions are met in your case. Speak to one of our taxation lawyers today if you have any questions about State Taxes.