Episode 67 FS360 Podcast - Vacant Residential Property Tax

As of July 1 2024, all Victorian residential properties are liable for vacant residential property tax if they don’t meet the state government’s requirements.

Speaking on the FS360 Podcast, Mulcahy & Co principal solicitor Brad Matthews outlined what the tax entailed, who could be liable for it and the exemptions available.

Initially charged to inner city Melbourne property owners when first introduced in 2018, the tax applied to properties that were vacant for at least six months over the previous 12 months.

“They would pay 1% of the land’s capital improved value, so if you had an apartment that was worth $1 million and you didn’t meet those requirements … you’d get your $10,000 bill,” Matthews said.

“Fast forward to now, what’s changed is, (since) the 1st of July, it has applied to all residential properties in Victoria.

“Will it impact anybody from the 1st of July? Not specifically, but when it will come home to roost is at the end of the year when the government looks back and says, ‘have these properties been occupied for six months in the last year?”

A secondary change to the tax is the percentage of the capital improved value owners would need to pay. Previously, it was fixed at 1%, however now that will grow to 2% if vacant for a second straight year and 3% if vacant for a third straight year. It will remain at 3% from then on.

“It needs to be occupied by someone. That can obviously be yourself … a permitted occupant (such as) your daughter while she’s at university … or alternatively a person under a lease or a short-term letting arrangement provided they’re not set up purely for avoiding payment,” Matthews said.

“Does that six months need to be continuous? No, it doesn’t at all.”

Different exemptions are available. The first of these is for those moving into a rental property while renovating their principal place of residence. Exemptions are available during that period.

Victorians who own a holiday home could also have an exemption available to them.

“You can apply for a holiday home exemption where the owner or their permitted occupants … use it for more than four weeks per year, they don’t need to be continuous weeks, but they need to be a genuine four weeks,” Matthews said.

“If you own more than one holiday home, then at the moment, it’s appearing that you’ll only be able to apply that once.

“Currently the legislation limits that to properties owned by individuals. If you own your holiday house in a company or a family trust, that holiday home exemption doesn’t apply.

“But in the most recent announcements with the latest Victorian budget, they’ve introduced legislation that will include companies and trusts in the exemption, with some rules around that.”

The final exemptions are available to those with deceased estates or for those living interstate or overseas. If property owners can prove the property was vacant for a short period while getting probate following a death, the exemption could apply.

For Victorians living interstate or overseas, they have to prove the property was their principal place of residence, for example providing pay slips to show they were flying in and out of Western Australia for work, etc.