State Taxes: Don’t get caught out by the new vacancy property tax

The new Victorian Residential Property Tax (Vacancy Tax) will be charged at 1% of the Capital Improved Value on properties around inner and middle Melbourne that have been vacant for 6 months or more.  Land owners must begin considering, and keeping records of, the use of their residential property holdings in and around the Melbourne Metropolitan region.

The Victorian Government has introduced the Vacancy Tax on residential land to increase supply and reduce the pressure on purchase and rental prices of residential properties. The Vacancy Tax takes effect on 1 January 2018 and will be administered by the State Revenue Office as part of the annual land tax process.

The Vacancy Tax will be calculated on the Capital Improved Value of affected property at a rate of 1% in addition to land tax and council rates. For example, on land valued at $1,500,000, the vacancy tax will be $15,000,

The Vacancy Tax will apply to residential land located within specified geographic regions of Melbourne that was vacant for a total of 6 months or more within the previous calendar year, covering the following local council areas: Banyule, Bayside, Boroondara, Darebin, Glen Eira, Hobsons Bay, Manningham, Maribyrnong, Melbourne, Monash, Moonee Valley, Moreland, Port Phillip, Stonington, Whitehorse and Yarra.

Fortunately, transitional provisions exist for property owners to take remedial action in relation to properties that are currently vacant. Exemptions will also apply to properties used as holiday homes or a business or properties under construction, as well as land that has changed ownership in the year preceding the tax year.

It is expected that the State Revenue Office, which now has sophisticated processes for identifying the extent of use of a property (for example, use of electricity and water), will audit vacant properties.

In a double-blow for foreign investors acquiring residential property in Victoria (and also impacting investments in Australia’s other States and Territories), the Federal Government has introduced its own annual vacancy charge as part of an annual ongoing requirement under Australia’s foreign investment regime.  The new measures require foreign investors to report annually on the use of their residential land holding and pay a charge equal to their original investment approval fee if their property is vacant for at least 6 months per year.

The Macpherson Kelley Tax Team can assist in structuring property holdings and developments to minimise CGT, GST, stamp duty, land tax and the vacancy tax. Contact us for more information.

This article was written by Craig Gibson, Principal Lawyer– Commercial (Tax).