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How Victoria widens its land tax horizons


Changes to the regime in the state last year expand levies on vacant land and prohibit contracts that seek to pass on certain liabilities.

By Jeremy Makowski 14 minute read

The State Taxation Acts Amendment Act 2023 received royal assent on 12 December and makes changes to:

  1. Expand the Victorian residential land tax rules.
  2. Prohibit adjustments to land tax and existing windfall gains tax liabilities.
  3. Extend corporate reconstruction relief.

Expansion of vacant residential land tax

The vacant residential land tax (VRLT) is a Victorian tax that applies in addition to land tax or the federal annual vacancy fee. The Victorian government said the expansion of the tax was designed to free up available housing stock to address escalating rental prices.


Currently, VRLT applies annually at the rate of 1 per cent on the capital improved value of residential properties but only within specific inner suburbs of Melbourne that are vacant for more than six months in a calendar year. 

From 1 January 2025 (which applies based on what occurs in the 2024 year), VRLT will no longer be confined to vacant residential land in metropolitan Melbourne suburbs but will apply to all residential land in Victoria that is unoccupied for more than six months in a calendar year.

The rate of VRLT will increase progressively the longer the residential land is vacant. The rate starts at 1 per cent in the first year and moves up to 2 per cent in the second and applies at a rate of 3 per cent for subsequent years.

There will be an exemption for holiday homes, provided they are used as a holiday home by the owner’s relatives for at least four weeks per year (whether continuous or in aggregate). “Relatives” are defined to include “the owner’s spouse/domestic partner, lineal ancestors and descendants, siblings, and includes the owner’s siblings (and those of the owner’s spouse), as well as spouses of the owner’s children and siblings”.

The act does not extend the four-week holiday exemption to properties held through companies and most trusts (including discretionary trusts). However, the government has said it is committed to extending the exemption to address this issue, which it will reconsider in the first half of 2024. This should be watched closely next year because as the law currently stands, holiday homes held through companies and most types of trusts will not escape VRLT, even if used as a holiday home for four weeks or more.

From 1 July 2026, the VRLT will also extend to unimproved/undeveloped land that has been unimproved for five years or more, but this measure will be confined to certain areas of metropolitan Melbourne. On this, the Commissioner of State Revenue will have discretion to extend the period of non-application beyond two years (beyond 1 January 2026) if there is an acceptable reason for the construction not having commenced, such as if there is a delay in the development that is outside of the owner’s control.

Conferring a wide discretion on the Commissioner creates uncertainty for taxpayers as it is unclear how it will be exercised and whether it will be subject to changes in approach without warning. That said, there are potential limits on the scope of the Commissioner’s powers insofar as the Treasurer will be required to issue guidelines for the exercise of the discretion, to which the Commissioner must have regard.

For newly constructed dwellings, the VRLT will not apply until 1 January 2027 provided that the Commissioner is satisfied that the owner made “genuine efforts to sell the land at or below the price that they expected to receive when construction commenced on the land”.

Other changes: land tax or windfall gains tax

From 1 January 2024, vendors will be precluded from passing on to the purchaser any part of their land tax liability or existing windfall gains tax (WGT) liability. Terms within contracts that seek to do so will be void and contracts that include such terms will be illegal with substantial penalties applying. The measure is designed to address a perceived lack of transparency for consumers, but seemingly goes beyond addressing risks for consumers as it will apply to transactions with a value of up to $10 million.

Given it is common practice for contracts to provide for an adjustment to land tax, standard form contracts for sales up to the prescribed amount will need to be amended for contracts entered into from 1 January.

Additionally, the measure would appear to extend the prohibition to any tax arising under the Land Tax Act 2005 (LTA), which includes not only ordinary land tax, but also other surcharges and taxes imposed under the LTA such as VRLT and the absentee (foreign) owner surcharge. 

On a commercial level, vendors may seek to make an upfront allowance for these taxes and build that into the sale price as best they can.

The act also made a few other changes most notably being:

- Extending the corporate restructure duty relief to certain sub-sales or nominations.

- Expanding the charitable land WGT exemption.


It will be important to monitor whether the government honours its commitment to extend the four-week holiday exemption to VRLT for homes held through companies and discretionary (and other) trusts. Otherwise, such residences will need to be rented out for six months in the calendar year to escape the tax.

Additionally, vendors selling properties should be careful to ensure that their contracts are appropriately updated to remove any terms seeking to pass on land or other taxes and that an allowance is built into the purchase price they are willing to accept.

Jeremy Makowski is a partner at Coghlan Duffy Lawyers.


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