Uninhabitable but taxable – Are you caught by Vacant Resident Land Tax?

From 1 January 2026 Victoria’s Vacant Residential Land Tax (VRLT) will generally apply to residential land across Victoria, with limited exceptions, and undeveloped land within Metropolitan Melbourne. Before 2025, VRLT applies only to land with existing homes in certain specified municipalities.

VRLT is imposed in addition to ordinary land tax. It applies in a given tax year where residential land is considered ‘vacant’ at midnight on 31 December of the preceding year.

Broadly, residential land is defined as land that is capable of being used solely or primarily for residential purposes. This includes land containing a dwelling that is uninhabitable.

Residential land containing a dwelling is regarded as vacant if it has not been occupied for a period of greater than 6 months (whether continuous or aggregated) in the year preceding the tax year by the owner or the owner’s permitted occupant as their principal residence, or by a natural person under a lease or short-term letting arrangement.

For residential land with an uninhabitable dwelling, it is regarded as vacant in a tax year, if at the end of the year preceding the tax year, the residence has been uninhabitable for 2 years or more.

This article examines the practical implications of VRLT for uninhabitable properties and the evidentiary challenges that arise.

What does uninhabitable mean?

The Land Tax Act 2005 (LTA) does not define the term “uninhabitable”. According to the State Revenue Office (SRO) website, “uninhabitable properties generally require significant work to return them to a state where someone could live.”

The Explanatory Memorandum introducing the relevant law included the following description: “uninhabitable in this context means some condition that makes living in the residence or premises impossible. Examples may include significant water leaks, missing walls or roof that exposes the living space to the elements, electrical hazards, or other such conditions. Aesthetics such as unfinished painting or worn carpet do not render a property uninhabitable.”

Why does this matter?

There has been an increase in SRO compliance activity in relation to uninhabitable properties notified to the SRO, which are approaching the two-year exemption time limit. Note that uninhabitable properties need to be notified to the SRO in the land tax year it becomes uninhabitable in order for the exemption to apply for VRLT.

A common challenge for taxpayers is understanding the timing of when their property becomes uninhabitable as failure to do so may lead to inadvertent exposure to VRLT once the two-year exemption period expires.

Whether VRLT applies in a particular tax year, depends on the status of the property at midnight on 31 December of the preceding year. For example, assume a rental property became uninhabitable in April 2025 due to severe termite related structural damage. The landowner has two years to restore their property to an inhabitable condition. Accordingly, VRLT does not apply in the 2026 and 2027 tax years. If the property remains uninhabitable as at 31 December 2027, VRLT will apply in the 2028 tax year.

What if the landowner managed to restore the property on 1 December 2027. Will VRLT applies in the 2028 tax year?

Yes, prima facie, the landowner will be subject to VRLT in the 2028 tax year. This is because the property fails to be occupied for at least 6 months during 2027 in the manner outlined above.

Note that the landowner may be eligible for another exemption, such as the holiday home or construction exemption.

Accordingly, the timing of restoration works is critical. A delay in making the property habitable, with no alternative exemption available, may leave insufficient time to satisfy the six-month occupancy requirement before 31 December. In the above example, a landowner may inadvertently expose themselves to VRLT despite undertaking remediation works, meaning the property will still be subject to VRLT in the 2028 tax year.

Onus of proof and evidentiary burden

It should be noted that a property will not be regarded as uninhabitable merely because it fails to meet the minimum standards detailed in the Victorian Residential Tenancies Regulations 2021. A higher threshold is required, and the onus is on the landowner to prove with evidence that the property in question is not suitable or safe for human occupancy as a result of, for example, severe damage, structural deterioration, the presence of hazardous materials etc. The SRO typically expects that in addition to photographic documentation, structural damage should be substantiated with professional evidence such as council inspection, an independent inspector report, structural engineering report etc.

Recent cases illustrate taxpayers often fail to provide sufficient evidence to prove uninhabitability.

In Burke v Commissioner of State Revenue (Review and Regulation) [2025] VCAT 493, the Commissioner imposed VRLT in relation to the property in Yarraville for the 2019 land tax year. The taxpayer objected on the basis that the property was uninhabitable. The property had been burgled, resulting in the removal of all copper piping, which the taxpayer argued rendered the property “uninhabitable”. The taxpayer submitted photos which showed extensive damage and an absence of taps in the bathroom and kitchen. However, the burglary took place in 2021 and the photos he provided to demonstrate damage was in relation to that burglary. There was no evidence of the property being uninhabitable as at 31 December 2018. The tribunal found on balance of probabilities that the property in question was ‘capable of being used solely or primarily for residential purposes’ and therefore was residential land at that time and confirmed the imposition of land tax and VRLT for the 2019 land tax year.

The taxpayer in KES v Commissioner of State Revenue (General Review) [2026] VCAT 75 was unable to provide any photos or proof of the condition of the property between 2018 – 2020 assessment years. The property was said to be dilapidated with electricity wires and gas pipes being cut and having no hot water. However, some family members had resided in the property at various times, though the taxpayer noted that they would not stay longer due to the condition of the property. Ultimately, the taxpayer lost the case due to insufficient evidence to prove the property was uninhabitable, particularly as the taxpayer had noted the property was “liveable with harsh conditions”.

These two cases underscore two recurring themes, evidence must relate to the relevant assessment year and assertions without contemporaneous, independent documentation are unlikely to succeed.

Commissioner’s discretion

The Commissioner retains discretion under the LTA to extend the two-year uninhabitable exemption period where there are acceptable reasons the residence has not been restored to a habitable condition by that time. Landowners experiencing genuine delays — such as insurance disputes, builder insolvency, permit delays, or other objective constraints — should consider whether an application for extension is appropriate. Careful preparation of supporting evidence will be critical.

As always, our Taxation team remains available to assist practitioners and their clients in navigating land tax, including VRLT. If your clients need assistance such as applying for Commissioner’s discretion for an extension, please get in touch with us to discuss.

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