Vacant residential land tax (VRLT) changes coming early 2026

Major revisions to the Victorian vacant residential land tax (VRLT) came into effect on 1 January 2025, with further changes to take effect in early 2026. The expansion of the VRLT regime makes it a vital consideration for Victorian landowners and investors moving forward.

What is VLRT and when does it apply?

Vacant residential land tax is levied on taxable residential properties across Victoria which remain unoccupied for an aggregate period exceeding six months in any calendar year. VRLT was introduced by the Andrews government in 2018 to encourage the use of vacant properties across the state.

From 1 January 2025, VRLT applies to the below types of land.

Taxable: Land on which property taxes may be levied

Where land is exempt from land tax, it will also be exempt from VRLT (for example, under the Principal Place of Residence exemptions).

Residential: Land capable of being used solely or primarily for residential purposes

Residential land can also include:

• Land under renovation or construction
• Land that contains a residence that is unhabitable

Residential land does not include:

• Commercial residential premises
• Residential care facilities
• Supported residential services
• Retirement village services

Note: From 1 January 2026, the definition of residential land will broaden to include unimproved land in metropolitan Melbourne which is left undeveloped for 5 years or more.

Vacant: Land is considered vacant for the purposes of VRLT

Vacant land is considered vacant for VRLT for one of the two reasons:

1. The land is not used or occupied (whether continuous or aggregate) for a period greater than 6 months in the preceding calendar year by the owner, permitted occupant of the owner, or natural person under a lease/short stay period
2. The land is under construction or renovation (or is otherwise uninhabitable) and a period of two years has lapsed from the date of issuance of the building permit (or the date on which the land became uninhabitable)

Note: Residential land outside of inner/middle Melbourne which was uninhabitable on or before 31 December 2023 will not be regarded as vacant until 31 December 2025.

In preceding years, VRLT was only levied on vacant residential land in inner and middle Melbourne. From 1 January 2025, VRLT applies to all vacant residential land in Victoria, including in the popular holiday regions of the Mornington Peninsula and Surf Coast.

VRLT will not apply to vacant residential land in the:

• Falls Creek
• Mt Baw Baw
• Mt Buller
• Mt Hotham
• Mt Stirling
• Lake Mountain Alpine resorts

How is VLRT calculated?

Prior to 1 January 2025, VRLT was levied at a fixed rate of 1 percent of the capital improved value (CIV) of the taxable land.

VRLT will now be levied at a progressive rate, increasing by 1 percent each year up to a maximum of three percent, based on the number of consecutive tax years that the landowner has been liable for VRLT.

For owners of taxable land, the rate of VRLT will be calculated as follows:

• 1% CIV for the first year that land is liable for VRLT
• 2% of CIV for the second consecutive year that land is liable for VRLT
• 3% of CIV for the third consecutive (and each subsequent consecutive) year that land is viable for VRLT

Victorian homeowners are liable to pay VRLT in addition to ordinary land tax for all affected properties.

Holiday Home Exemption

Property is exempt from VRLT if it is used as a holiday home by the owner, a vested beneficiary, or a relative of the owner or vested beneficiary, for at least four weeks of the calendar year. In order to qualify for this exemption, the landowner or vested beneficiary must also have their principal place of residence in Australia.

Landowners can only claim this exemption for one property each calendar year.

Holiday homes owned by companies or trusts

Prior to 1 January 2025, the holiday home exemption was only available for vacant land owned by natural persons or vested beneficiaries. Land owned by companies or trustees was not eligible for the exemption.

As a result of the recent changes, vacant land in Victoria owned by companies or trustees may now be eligible for the holiday home exemption, where the following requirements are met.

Date: The owner or trustee owned the land on 28 November 2023 or became the owner after 28 November 2023 under a contract of sale entered into prior to 28 November 2023.

Continuity: The owner of the land has been the owner continuously since 28 November 2023.

Composition: No changes in beneficial ownership since 28 November 2023, except:

• For corporations, any transfer of shares between relatives
• For unit trusts, any transfer of units between relatives
• For fixed trusts, any transfer of beneficial interest between relatives
• For discretionary trusts, any change to the specified beneficiaries to add or remove a person who is a relative of another specified beneficiary

Interest and PPR: The owner meets the minimum ownership and PPR requirements:

• For corporations, 50% of the shares are owned by natural person(s) who in the previous year used and occupied land in Australia as a PPR
• For unit trusts, 50% of the units are owned by natural person(s) who in the previous year used and occupied land in Australia as a PPR
• For fixed trusts, 50% of the beneficial interest are held by natural person(s) who in the previous year used and occupied land in Australia as a PPR
• For discretionary trusts, a specified beneficiary or a relative of a specified beneficiary who is a natural person who in the previous year used and occupied land in Australia as a PPR

Use: The property is used for 4 weeks per calendar year by persons who satisfy the PPR requirement or a relative of that person.

Commissioner: The Commissioner of State Revenue is satisfied that the property is used as a holiday home.

Other Exemptions

In addition to the broadened application of the holiday home exemption, two new exemptions to VRLT will come into effect from 1 January 2026:

Land contiguous to PPR: For unimproved land that is contiguous to an owner’s PPR, that enhances the owner’s PPR and is used solely for the private benefit and enjoyment of the owner.

Land that cannot be developed: For land that the Commissioner of the State Revenue Office is satisfied cannot be used or developed for residential purposes.

The new exemptions will operate in conjunction with existing exemptions to VRLT, including where land is used for work purposes for 140 days of the year, changed ownership in the previous year, or became residential in the previous year.

Notification Requirements

VRLT is assessed by reference to the use of property in the previous calendar year. VRLT liability is assessed by self-reporting. Owners of vacant residential land in Victoria are required to notify the SRO by 15 January each year using the following method:

• Owners of vacant residential land may notify the SRO via the online portal
• Owners of residential land in inner Melbourne that is under construction or renovation, or has otherwise been uninhabitable for two years or more, may notify the SRO by email

Summary of Changes

Owners of vacant residential land in Victoria will soon feel the effects of the recent changes, with the 2025 Victorian land tax and vacant residential land tax assessments due to be rolled out shortly. Victorian landowners who are assessed as liable to pay VRLT should consider the expanded scope of the tax levy, and whether an objection should be lodged.

Macpherson Kelley’s tax lawyers and property lawyers have specialised knowledge of Victoria’s vacant residential land tax regime and are here to provide valued advice on the recent legislative changes.

Contact us today to discuss how we can assist you in effectively understanding how the vacant residential land tax changes may apply to you.

The information contained in this article is general in nature and cannot be relied on as legal advice nor does it create an engagement. Please contact one of our lawyers listed above for advice about your specific situation.