Your questions answered: Victoria's vacancy property tax

Conveyancing.com on 17 April 2018

If you've got an interest in the Australian property market, you've probably already heard about the new vacant property tax in Victoria. Created in response to the lack of housing supply in inner and middle-ring Melbourne, the Victorian State Government has sought to free up more housing by introducing the Vacant Residential Land Tax for homes that are left vacant for more than six months in a calendar year.

Administered by the State Revenue Office, the vacancy property tax came into effect on 1 January 2018. It is predicted to raise more than $80 million over four years by requiring owners to pay revenue to the government if they do not occupy their properties for more than six months a year.

So what do you need to know about the new vacancy property tax as someone looking to buy or sell a property? Well, it's a multifaceted question, and we've compiled the necessary information you need to know below.

At Conveyancing.com, we can offer expert legal advice on all aspects of buying, selling and investing in property. Call us today on 1300 444 444 to chat about the new vacancy property tax in Victoria.

Where does the tax apply?

The new tax will affect properties in 16 inner-city areas of Melbourne including land on which a house is being renovated or land where a former residence has been demolished and a new house is under construction. Vacant properties in the following municipal council areas may be affected:

Banyule

Melbourne CBD

Bayside

Monash

Boroondara

Moonee Valley

Darebin

Moreland

Glen Eira

Port Phillip

Hobsons Bay

Stonnington

Manningham

Whitehorse

Maribyrnong

Yarra

Conveyancing.com's Managing Director, Jim Parke, says that it's important to remember the vacancy property tax is assessed on a calendar year basis. The six months do not need to be continuous.

"Transitional provisions exist for property owners to take remedial action concerning properties that are currently vacant," he says. "Exemptions also apply to properties used as holiday homes or businesses, as well as properties under construction and land that has changed ownership in the year preceding the tax year."

"Those looking for clarification and advice on the new residential property vacancy measures and the exemptions that apply can contact Conveyancing.com for fast, reliable advice."

How much does the tax cost?

The vacancy property tax will apply annually at a rate of 1 per cent of the property's Capital Improved Value (CIV). This will be in addition to land tax and council rates.

The CIV of a property is the value of land and buildings as determined by the general valuation process and listed on the owner’s council rates notice. Although the new tax is different to land tax, it will also be payable on a calendar year basis.

"On a property valued at $1.2 million, for instance, the vacancy tax will be $12,000," Mr Parke says. "Unlike land tax, there's no taxable value threshold for the vacant residential land tax."

"Property owners in inner-city areas who opt to rent their properties on short-stay accommodation sites, such as Airbnb or Stayz, will find their home is still subject to the tax if it is unoccupied for more than six months in a calendar year. While there are exemptions available for properties used by owners as holiday homes, the conditions to be met are stringent."

Mr Parke, who manages all of our operations at Conveyancing.com, says the best way to understand the new requirements and the exemptions available is to seek legal advice that is specific to your situation from specialists in property conveyancing and transactions.

evrything you need to know about vacant property tax federal man affected by vacant property tax

Who will it hit hardest?

“The vacancy property tax will be a harsh blow for any foreign investors acquiring residential property in metropolitan Melbourne," observes Mr Parke. "The Federal Government has already introduced a vacancy charge for foreign investors acquiring residential property, so the new tax throws even more complexity into the mix."

“The new measures require foreign investors to report annually on the use of their residential land holding and pay a charge equal to their original investment approval fee if their property or properties are unoccupied for six months of the year."

It will also be hard on ‘mum and dad’ investors hoping to earn from a single investment property and owner-occupiers who travel for work or leisure. The median house price in inner Melbourne is now above $1.5 million - so the vacancy tax is relatively steep at 1 per cent.

How will the vacant property tax in Victoria be enforced?

The new tax - which is the first of its kind in Australia - will rely heavily on owners of homes in inner and middle-ring Melbourne reporting that their properties remain vacant. Premier Daniel Andrews has warned of significant penalties for those who fail to report.

The aim of the tax is to assure the availability of housing for Victoria’s capital, so it presents a good opportunity for owners who are 'land banking' to proactively think about how they use their property.

If you own a property that was unoccupied for more than six months during 2017, you were required to notify the State Revenue Office about it by 15 January 2018. Owners who missed this deadline still have the opportunity to submit a late disclosure, which will be treated more favourably than if a vacant property is identified through the SRO's monitoring and compliance activities.

evrything you need to know about vacant property tax federal agent looking through tax files

Need more information?

While the tax may initially seem like yet another disincentive to invest in inner-city real estate, it offers a chance for the rental market to open up, which is good news for both investors and renters. Data shows more than a thousand properties are vacant in the Yarra area, while more than 1,700 remain empty in Moonee Valley.

Premier Daniel Andrews has called the new vacancy property tax "a common sense change". Similar tax measures recently came into force in Vancouver and Paris.

If you are seeking expert advice on the new vacant property tax in Victoria, Conveyancing.com can help. Our team of qualified conveyancing lawyers can provide industry-leading knowledge and insights backed by quality service. We know Australia's property market inside and out - and we can ensure you pay the right amount of tax at the right time.

You don't need to know everything about buying and selling real estate if you hire a conveyancer who does. Contact us on 1300 444 444 for all the legal support and guidance you need regarding the new vacancy property tax.