Vacant Residential Land Tax (VRLT)

Key Considerations for Accounting Professionals

The Vacant Residential Land Tax (VRLT) was introduced by the Victorian Government on 1 January 2018 as part of broader efforts to address housing shortages. It aims to discourage owners from leaving residential properties vacant by imposing a tax on properties that remain unoccupied for more than six months in a calendar year. With expanded coverage from 1 January 2025, VRLT will apply statewide, impacting property owners across regional and outer Melbourne.

For tax practitioners advising clients on property taxation, understanding VRLT’s scope, assessment criteria, and compliance obligations is essential. This guide provides a detailed breakdown of liability, exemptions, calculations, and compliance risks associated with VRLT.

VRLT vs Other Taxes: Key Differences

Land Tax

VRLT is separate from land tax, but properties exempt from land tax are also exempt from VRLT.

Absentee Owner Surcharge

This tax applies to foreign owners or Australian expatriates but is distinct from VRLT.

Federal Annual Vacancy Fee

A federal charge that applies to foreign investors leaving properties vacant, separate from state-based VRLT.

When Does VRLT Apply?

VRLT applies if a residential property was vacant for more than six months in the preceding calendar year. The tax applies to individual properties, not portfolios.

Scope of Application

Residential properties with an existing dwelling that were vacant for six months or more.
Properties under construction/renovation exceeding two years.
Uninhabitable properties exceeding two years.

Expansions from 2025

Statewide Expansion

Previously limited to inner and middle Melbourne, VRLT will apply across all of Victoria from 1 January 2025.

Exemptions for alpine resorts

Locations such as Mt Buller and Falls Creek remain unaffected.

What is Considered ‘Vacant’?

A property is deemed vacant if it is not occupied as a principal place of residence (PPR) or leased out for at least six months in a year. Importantly:

Short-term rentals (e.g., Airbnb) do not count unless the property was genuinely occupied for six months.
Intermittent use by friends or family does not qualify as occupancy.

When Does VRLT Apply?

Some properties are exempt from VRLT, particularly those with existing land tax exemptions or specific uses.

Key Exemptions:

Principal Place of Residence (PPR)

Owner-occupied homes.

Retirement Villages & Residential Care Facilities

Includes aged care and disability housing.

Commercial Residential Premises

Hotels, boarding houses, and serviced apartments.

Alpine Resorts

Exempt under existing regulations.

Properties Under Construction/Renovation

Exempt for two years from the date the building permit was issued. Extensions may be granted for construction delays beyond the owner's control.

Uninhabitable Properties

Must require significant work (e.g., structural damage, lack of essential utilities).

How VRLT is Calculated

VRLT is calculated on the Capital Improved Value (CIV) of the property, which includes land and structures as assessed by local councils.

Progressive Tax Rates (from 2025):

1st Year: 1% of CIV.
2nd Year: 2% of CIV.
3rd Year: 3% of CIV.

Capital Improved Value (CIV) is found on the council rate notice and represents the combined value of land and buildings.

Case Studies: Practical VRLT Scenarios

Example 1

Example 2

Example 1

Vacant Property in Toorak

Scenario

The property was vacant for 2023, 2024, and 2025.

Outcome:

2024: VRLT of 1% of CIV applies.
2025: VRLT of 2% of CIV applies.
2026: VRLT of 3% of CIV applies.

Example 2

Property Under Construction in Shepparton

Scenario

Construction began on 1 January 2023, but remains incomplete by 31 December 2025.

Outcome:

Exempt for 2024 and 2025 under the two-year construction exemption.

Liable from 2026 if construction remains incomplete.

(Source: State Revenue Office Victoria – Updated VRLT guidelines (16 Jan 2025))

When Does VRLT Apply?

Notification Requirements

Who Must Notify?

Owners of properties vacant for more than six months.

Notification Deadline

15 January each year.

How to Notify?

Via the State Revenue Office (SRO) portal.
Direct email submission (where applicable).

Penalties for Non-Compliance

Voluntary late notification: 5% penalty tax.
Notifying after an SRO investigation starts: 20% penalty tax.
Intentional non-compliance: Up to 90% penalty tax.

Late Disclosures: Encouraged as they reduce penalties compared to non-disclosed vacancies found via SRO audits.

Changes from 2026: Additional Rules

Unimproved Residential Land

From 2026, vacant metropolitan land that remains undeveloped for over five years may attract VRLT.

Regional VRLT Implementation

New regional rules take effect from 2026, applying to uninhabitable properties as of 31 December 2023.

Final Thoughts & Practitioner Recommendations

VRLT represents a significant compliance and cost consideration for property owners, with progressive tax rates from 2025 amplifying financial exposure. Accounting professionals should proactively assist clients by:

Reviewing CIV values and estimating VRLT liability.

Identifying and applying for exemptions where applicable.

Ensuring timely notifications to avoid penalties.

Advising on strategic property use (e.g., long-term leasing vs. redevelopment).