As we settle into the start of 2024, the State Revenue Office is preparing to issue the new year’s tax rates payable by property owners in Victoria. This includes vacant residential land tax and the absentee owner surcharge.
But do you know if these apply to you as a residential property owner?
We discuss each below.
Vacant residential land tax – what is it?
Vacant residential land tax is a state-based tax which will affect you if you own residential property located within 16 specific council areas in Victoria, and your property remained unoccupied for more than six months in total (continuously or otherwise) in the previous calendar year.
This tax is charged annually and is calculated at 1% of the property's capital improved value. A property’s capital improved value can be found on the property’s current annual council rates notice.
The list of the 16 specific council areas affected can be found here. Together with a link to the State Revenue Office’s vacant residential land tax calculator.
The vacant residential land tax is separate and will be charged in addition to that of any other land tax or surcharge which may be payable by on your property.
Residential property does not include vacant land, commercial residential premises, residential care facilities, supported residential services or retirement villages.
If your residential property is exempt from land tax, it will also be exempt from vacant residential land tax.
What does ‘Vacant’ mean?
A property is considered vacant by the State Revenue Office if, for more than six months in the preceding calendar year, it had not been lived in by:
- the owner, or an occupant permitted by the owner, as their principal place of residence; or
- a person under a lease or short-term letting arrangement made in good faith.
It will not be enough that the property is available for occupation, the property must have been used and occupied for more than six months in the previous calendar year.
Construction and renovation work which causes long term non-occupation of your residential property may also result in you being liable for vacant residential land tax.
Exemptions to vacant residential land tax
Homes that are unoccupied for more than six months of the preceding calendar year may be exempt from vacant residential land tax if:
- Ownership of the property changed during that year.
- The property became a 'residential' property during that year.
- The property became a ‘residential’ property during the previous two calendar years and ownership is unchanged (i.e., vacant land in which construction of a new residential premises has occurred, but which has been delayed).
- The property was used as a holiday home and occupied by the owner for at least four weeks of that year and the owner has a principal place of residence in Australia (homes owned by companies, associations or organisations are generally not eligible for this exemption).
- The property was occupied by the owner for at least 140 days of that year for the purpose of attending their workplace or business, and the owner has a principal place of residence in Australia (homes owned by companies, associations or organisations are generally not eligible for this exemption).
- Starting from the 2020 land tax year,
Irrespective of whether you believe you are entitled to an exemption from vacant residential land tax, if your property was vacant for an aggregate of six months in the previous calendar year, you have an obligation to notify the State Revenue Office by 15 January each year. If you believe that you are eligible for an exemption, then you should advise the State Revenue Office at this time.
Failure to notify the State Revenue Office by the deadline may result in penalties.
The absentee owner surcharge is an additional amount that applies over the land tax you pay over the general and trust surcharge rates of land.
From the 2024 land tax year this surcharge is calculated at a rate of 4% on the total taxable value of the land the absentee owner owns.
What does ‘Absentee Owner’ mean?
An absentee owner is an individual or corporation that legally owns a property without occupying it or actively managing it (i.e., it distinguishes between property owners that are hands-on with their investment versus those who are largely hands off).
If you are an individual, then you are considered an absentee owner if you:
- are not an Australian citizen or permanent resident; and
- you do not ordinarily reside in Australia; and
- you were absent from Australia on 31 December of the year prior to the tax year, or for more than 6 months in the calendar year prior to the tax year.
If you are a corporation, you are an absentee owner if:
- the company is incorporated outside Australia; or
- an absentee individual has a controlling interest in the company.
If the property is held in a trust, then you will be considered an absentee owner if:
- it is a fixed trust and any absentee beneficiary has a beneficial interest in land subject to the fixed trust;
- it is a discretionary trust where an absentee beneficiary is a specified beneficiary; or
- it is a unit trust where a unit holder is an absentee beneficiary.
Exemptions to Absentee Owner Surcharge
The Commissioner of State Revenue may exercise a discretion to grant an exemption from the absentee owner surcharge to absentee corporations and absentee trusts, if the absentee person who holds an absentee controlling interest in a corporation:
- is Australian-based;
- conducts a commercial operation in Victoria, whose commercial activities make a significant contribution to the Victorian economy and community by engaging local labour and using local materials and services; and
- exhibits good corporate behaviour.
Before you apply for an exemption, you should refer to the relevant Treasurer’s guidelines to determine your eligibility.
As with the vacant residential land tax, irrespective of whether you believe you are entitled to an exemption, you are required to notify the State Revenue Office by 15 January the year after you become an absentee owner. If you believe that you are eligible for an exemption, then you should advise the State Revenue Office at this time.
Once you have notified the SRO, the surcharge will be included in your Victorian land tax assessment.
Failure to notify the SRO that you are an absentee owner is a notification default and may result in penalties applying.
If you're unsure about your tax position in regard to this topic, have any questions or need assistance please don't hesitate to contact us today on +61 3 9822 8588 or email out team HERE. To find out more about our Property Lawyers see Kristy Muhlhan, Kate Smith or Sandra Le.