Certain Aspects Regarding the Vacant Residential Land Tax

In essence, if any person has any residential property located in the local councils of Banyule, Melbourne, Bayside, Monash, Boroondara, Mooney Valley, Darebin, Moreland, Glen Eira, Port Phillip, Hobsons Bay, Stonnington, Manningham, Whitehorse, Maribyrnong and Yarra, then there is a risk that the Vacant Residential Land Tax will apply.  The current rate is 1 per cent of the property’s capital improved value (which includes the building value). A property will be considered vacant if it is unoccupied for six months or more in a calendar year e.g. from 1/1/2017 – 31/12/2017. The six months does not need to be continuous.  It is a self-reporting mechanism, but penalties will apply if qualifying owners fail to notify and later caught.

For a property to be “residential”, it must be able to be occupied as a residence.  Therefore, it is arguable that the property will cease to be “residential” if essential services are not connected e.g. meters removed.  A property that is in the process of undergoing significant renovation or reconstruction is unlikely to be regarded as “residential” and we understand that the date of ceasing to be residential is from the date that building permit is issued.  Also, vacant land is not Residential Land for this purpose.   However, once the property is able to be occupied (e.g. occupancy permit issued) then it will become residential property for this purpose.

There are also confirmed exemptions for the tax including holiday house, city properties used for work purposes and new residential properties.  To qualify the holiday house or city properties used for work purposes exemptions, you must already have a principal place of residence in Australia and there are also strict requirements for those properties to be genuine holiday home or for city work purposes.  For new property exemption, the exemption is only for the initial 12 months after occupancy permit is issued.  This is particularly relevant for developers and alike, as this means that if a newly finished property is unsold after the initial 12 months, then you will probably need to pay the tax if the property remains vacant for more than 6 months in that calendar year.   Bearing in mind that the aim the government is to reduce housing shortage by incentivising making those properties available for rent on the leasing market and penalise if you don’t.  As far as we understand from the SRO, for properties under an enforceable and valid tenancy agreement, whether the tenant in fact resides in the property will not be the owner’s responsibility to monitor.

The SRO has published certain Q&A and a link is attached: http://www.sro.vic.gov.au/node/5816  which could be of further help.

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