/// PROPERTY LAW
Vacant Residential Property Tax
The Victorian Government recently introduced the Vacant Residential Property Tax (VRP tax) to improve housing availability in Melbourne.
What land does it apply to?
The tax applies to residential properties in the following council areas:
An owner of residential property in one of the above areas that is vacant for six months or more in a calendar year may be liable to pay VRP tax.
When did the VRP tax commence?
The VRP tax came into effect on 1 January 2018 and applies in relation to the 2017 and subsequent calendar years.
What is ‘residential property’?
Residential property is a property that is capable of being used solely or primarily for residential purposes.
What does ‘vacant’ mean?
Property is considered ‘vacant’ if it is not used and occupied for at least 6 months:
- 1. as a principal place of residence by the owner or the owner’s permitted occupant; or
- 2. by a person under a genuine lease or short-term letting arrangement.
A lease or letting arrangement must be made in good faith and not for the purpose of avoiding the payment of VRP tax.
VRP tax applies if a property was vacant for a total period of greater than 6 months, whether continuous or not.
How much is the tax?
VRP tax is paid annually and is set at 1% of the capital improved value of the property. The capital improved value is set out on the council rates notice for the property.
How is the tax administered?
VRP tax is administered by the State Revenue Office of Victoria (SRO).
The tax operates on a ‘self-reporting’ system. Owners are required to report to the SRO if their property was vacant for six months or more in the preceding calendar year.
The SRO website provides an online notification portal for reporting vacant residential property. Owners of a vacant property must notify the SRO between 31 December and 15 January each year in respect of the preceding calendar year.
An owner must notify the SRO if a property was vacant even if an exemption applies.
The SRO will undertake monitoring and compliance activities. This may include data matching with water and other authorities.
Better late than never
The SRO encourages land owners to disclose vacant properties even if they missed the cut-off date. Late disclosures are treated more favourably than vacant properties that are identified as the result of an investigation.
Penalties for non-disclosure
An owner that fails to notify the SRO by 15 January may be liable for penalty tax. Penalty tax rates generally start at 25% and can be as high as 75% of the unpaid tax.
A property under construction is deemed to be a residential property if the property:
- 1. was a residential property before the construction commenced; and
- 2. will be a residential property when construction is completed.
This applies to renovations as well as redevelopments.
Properties under construction are regarded as vacant (and therefore subject to VRP tax) if at the end of a year the construction has not completed and more than 2 years have passed since the building permit for the construction was issued.
2017 Calendar Year
For the 2017 calendar year, a residential property is deemed to have been occupied (even if it was not) between 1 January 2017 and 30 April 2017. This means that a property must have been occupied for a further two months between 1 May 2017 and 31 December 2017 to be considered to have been occupied for more than six months in the 2017 calendar year.
The VRP tax does not apply in the following circumstances:
- Principal Place of Residence (PPR) exemption: If the Principal Place of Residence exemption under the Land Tax Act 2005 applies to the property then VRT tax does not apply.
- Change of ownership: A property that has changed ownership will not attract VRP tax in that calendar year. A change of ownership typically occurs when settlement of a sale takes place and not when a contract of sale is signed.
- New residential properties: A property is exempt from VRP tax for a year if it became a residential property during that year. For example, if a warehouse is converted to a residential property in 2018 then the owner is exempt from paying VRP tax in respect of the 2018 calendar year.
- Holiday homes: A property is exempt from VRP tax if it is used as a holiday home and occupied by the owner for at least 4 weeks in the calendar year (whether continuously or not). The owner of the property must also have a PPR elsewhere in Australia and the Commissioner of State Revenue must be satisfied that the property is a genuine holiday home. An owner can only claim this exemption for one holiday home per calendar year.
- Property used for the purpose of attending work: A property is exempt from VRP tax if it is occupied by the owner for at least 140 days of the calendar year for the purpose of attending their workplace. The owner must also have a PPR elsewhere in Australia and their place of work must be in one of the 16 specified local council areas.
Please feel free to contact us if you have any questions or require any assistance.
P 03 9944 0848