Land Tax Victoria Update: New Tax on Vacant Residential Properties

Recent changes to Land Tax law may cause you to pay a penalty of at least 1% of land value $10,000 on a million dollar block.

Make sure that any house owned by you for investment purposes is not vacant for longer than 6 months.

If your investment property is in an inner or middle Melbourne suburb and is vacant for more than 6 months you have the responsibility to inform the State Revenue Office.

This new tax will apply to inner and middle suburbs.

It is also relevant that the tax is calculated on the capital improved value of the property whereas normally State Revenue Office tax for property not used as a principal place of residence is assessed on the value of the land only.

The sixteen councils are listed below.

Residential property is land that is able to be used solely or primarily for residential purposes, such as a home or an apartment.

It also includes land on which a residence is being renovated or where a former residence has been demolished and a new residence is being constructed.

It does not include vacant land, commercial residential premises, display homes, residential care facilities, supported residential services or a retirement village.

What does ‘vacant’ mean?

A property is considered vacant if, for more than six months in the preceding calendar year, it has not been lived in by:

  • The owner or the owner’s permitted occupier, as their principal place of residence (PPR), or
  • A person under a lease or short-term leasing arrangement made in good faith
    1. The occupation does not need to be by the same occupant or for a single continuous period
    2. It is not enough that the property is available for occupation, such as by listing on a short-term rental website. It must actually have been used and occupied for more than six months.

It is not enough for the property to be used intermittently or on a casual basis by friends or family of the owner. The use and occupation must be either as a principal place of residence or subject to a bona fide leasing arrangement.
Stamp duty changes were introduced to affect all contracts for purchasers after 1 July 2017.

First Home Buyers

First Home Owners are still assisted by the provision that there is no stamp duty if the dutiable value is less than $600,000. Over $600,000 that concession is phased out and ceases at $750,000.

Husband and Wife Transfers of investment properties

As from 1 July 2018, the exemption from duty for husband and wife transfers is now no longer available except in relation to the principal place of residence.

However, the exemption will apply to all types of properties which are transferred as a result of a proven relationship breakdown.

Production of court orders or a Binding Financial Agreement would be required.

Off The Plan Duty Concession

All contracts signed after 30 June 2017.

This concession will only be made available to those who purchased an Off the Plan property to use as their principal place of residence.

It will not apply to residential investment properties or commercial properties.

So if you are considering moving to an Off The Plan property you must purchase a property which has an Off the Plan value at the date of contract of less than $550,000 and at least one purchaser must use the property as their principal place of residence for a continuous period of 12 months commencing within 12 months of taking possession of the property.

Further Advice

Each set of circumstances is different and you may wish to discuss with us the possibilities that arise including where a purchaser intending to move into a first home with an Off the Plan value of less than $600,000 may avoid duty even though the property may finish up being valued at well in excess of $600,000.

Chris Henderson

Chris Henderson

At Phillips & Wilkins, Chris practices in the areas of Property Law, Conveyancing and Family Law. Chris has grown up in the Northern Suburbs and continues to be a part of the local community as being a member of the Old Paradians Amateur Football Club and the Mill Park Cricket Club. Learn more about Chris' legal experience.