Vacant residential land tax applies – but it is not vacant?

The Victorian Government’s appetite for land tax revenue is increasingly reflected by the variety of scenarios that give rise to a liability under the vacant residential land tax (VRLT) rules.

Initially we should say the VRLT rules are perhaps some of the worst named taxing provisions we have come across.

When discussing the VRLT rules with a client/taxpayer you initially need to explain:

• the rules apply to vacant residential land (think empty block of land) only in parts of Victoria; (think Metropolitan Melbourne); but
• can apply to residential premises (think residential premises on land) throughout Victoria (except in “alpine areas” as defined) even though the premises are not vacant in any conventional sense.

The Land Tax Act 2005 delivers its VRLT outcome in an unusual manner.

Section 34A provides:

34A Imposition of vacant residential land tax

• Vacant residential land tax is imposed each year on taxable land in Victoria that is residential land which is vacant.

(1A) Despite subsection (1), vacant residential land tax is not imposed on taxable land in an alpine resort.

The concept of residential land is detailed in section 34B which provides as a starting point:

34B What is residential land?

1) For the purposes of this Division, residential land is land that is capable of being used solely or primarily for residential purposes.

From this starting point section 34B then details a variety of inclusions, exclusions and qualifications which ultimately shape what is in fact residential land. The inclusions, exclusions and qualifications deal with matters such as residential premises under construction, uninhabitable properties and bring in vacant land in certain Local Council districts.

Having done this, section 34C confirms when residential land is vacant with different considerations applying for land which contains residential premises (partially constructed, uninhabitable or otherwise)and actually vacant land in the specified Local Council districts, think Metropolitan Melbourne but click here to see SRO list of same).

The core rules in section 34C as to when residential land is vacant are:

34C When is residential land vacant?

(1) For the purposes of this Division, residential land referred to in section 34B(1) is vacant in a tax year if it has not been used and occupied for a period (whether continuous or aggregate) of greater than 6 months in the year preceding the tax year by any one or more of the following—

 (a) the owner of the residential land as the principal place of residence of the owner; 

(b) the owner’s permitted occupant as the principal place of residence of the occupant; 

(c) a natural person under a lease or short-term letting arrangement made in good faith and not for the purpose of avoiding the payment of vacant residential land tax.

And so the problems begin to emerge.

As a family holiday home is unlikely to meet any 6 month per calendar year usage test, special provisions were required to be introduced to cater for this and other scenarios.

Uses of land in a manner such that, on a reasonable view, it is not vacant also continue to emerge and are being vigorously pursued by the State Revenue Office.

The question for the Government is what did you intend and does your law achieve (contrast exceed) that purpose?

Situation 1 –  it’s not vacant expect under the law ?

A residential property is adjacent to a principal place of residence (PPR). The PPR is owned by an individual and the adjacent  (next door) property by a company controlled by the individual. The individual has significant health issues and  requires daily care in management of same. The individual’s partner is the primary carer. The partner uses the adjacent residential property on a daily basis for cooking, operating administrative functions connected to their business, gardening, reading /TV time and often sleeps at the adjacent premises.

The adjacent property has been levied with vacant residential land tax.

Situation 2 –  it’s vacant but not under the law?

A residential property is owned by an individual and used as PPR. The individual also owns the  adjacent (next door)  residential property. The individual leases the adjacent property to a Pty Ltd controlled by the individual. The adjacent property is not otherwise used.

Situation 3 – a family holiday house – subject to VRLT?

A family decide to buy a holiday house in 2026. The property will be jointly owned by the husband and wife and their family discretionary trust. The property will have extensive use by the family (more than 28 nights in a calendar year). Does joint ownership which includes the family trust prevent access to the VRLT holiday home exemption either in full or to the extent of the family discretionary trust’s interest in the land?

In summary

The new Victorian Premier seems to have plenty of challenges and bigger ones than flagged here but if we are about fixing up the uncertainty (and assumed overreach) created by the VRLT rules then the types of issues flagged above should be added to his list.

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