Many people don’t think twice about leaving a property empty for part of the year, but in Victoria, that can have real tax consequences.
Vacant residential land tax (VRLT) is a tax on residential properties that are not used or occupied for a required period. In recent years, the rules have expanded significantly, and the tax now applies more broadly across Victoria, not just inner Melbourne.
For many property owners, the challenge is simple: it’s not always obvious whether a property is considered “vacant”. Getting it wrong can lead to unexpected tax bills, penalties and ongoing compliance obligations.
This guide explains how VRLT works, when it applies, and what to look out for.
What is vacant residential land tax?
Vacant residential land tax is a Victorian tax applied to residential properties that are left unoccupied for more than a set period each year.
If a property is not lived in for at least 183 days (around six months) in a calendar year, it may be considered vacant and subject to VRLT.
The tax is designed to encourage property owners to make better use of existing housing, particularly in areas where housing supply is tight. It is calculated as a percentage of the property’s Capital Improved Value (CIV) – the combined value of the land and any buildings or improvements on it.
The rates are progressive based on how long the property has been liable. In the first year, the rate is 1% of CIV. In the second consecutive year it rises to 2%, and from the third year onwards it is 3%. On a property with a CIV of $800,000, that works out to $8,000 in the first year, rising to $24,000 a year if the property remains vacant beyond year three. This is on top of any standard land tax already payable.
Where does VRLT apply in Victoria?
VRLT was originally limited to inner and middle Melbourne. That’s no longer the case. From 1 January 2025, the Victorian Government expanded the rules so that VRLT can apply to a much wider range of residential land across the state, including many regional areas.
The key takeaway is this: more property owners are now within scope, even if their property is outside metropolitan Melbourne. Because the rules have broadened, it’s worth reassessing any property you own, even if it wasn’t previously affected.
When is a property considered “vacant”?
A property is generally considered vacant if it is not occupied as a residence for at least 183 days in a calendar year. The important point is that “occupation” means genuine use as a place of residence, not just ownership or availability.
A common misunderstanding is that owning or maintaining a property is enough. For VRLT purposes, it comes down to actual use – not intention.
What counts as genuine occupation?
A property may be considered occupied if it is your principal place of residence, lived in by a tenant under a genuine lease, or used as a home by you or someone else for a sufficient period.
What does not count?
This is where many people get caught out. Leaving a property empty for most of the year, using it only occasionally, or making it available for rent without it actually being occupied will generally not satisfy the threshold.
Availability for rent does not equal occupancy
Short–term letting, such as Airbnb, often causes confusion here. What matters is the number of days the property is actually lived in, not whether it is listed.
A holiday home listed on Airbnb for most of the year may still be considered vacant if it is only booked for a small number of nights. A property used regularly for extended stays is more likely to meet the occupancy threshold. For further detail on how the SRO assesses occupancy, the State Revenue Office website is the authoritative reference.
Does vacant residential land tax apply to you?
Whether VRLT applies depends on how your property is used over the year. You may need to look more closely if you own a holiday home that is only used occasionally, have an investment property that has been empty for extended periods, have a property between tenants for longer than expected, or are renovating and the property is not being lived in.
Even short gaps can add up across the year, so it is worth looking at the total number of days the property is actually occupied rather than assuming it falls below the threshold.
Do holiday homes have to pay VRLT?
In some cases, yes – but there is a specific exemption that many holiday home owners can access, and it is worth understanding properly before drawing any conclusions about your situation.
A holiday home is exempt from VRLT if it is used and occupied by the owner or a close relative for at least four weeks in the relevant calendar year. Close relatives include a spouse or domestic partner, children and their partners, siblings and their families, and parents and grandparents. The four weeks do not need to be consecutive – they can accumulate over the year.
To qualify, the owner must also have a home of their own in Australia. It does not have to be owned – renting elsewhere in Australia while holding a holiday home is sufficient.
So if you use your place at Lorne or your weekender in the Dandenongs for at least four weeks across the year, and your primary home is in Australia, you will likely be exempt, provided you apply for that exemption through the SRO.
Where owners get caught is when use is genuinely minimal, and the four–week threshold is not met. Occasional drop–ins or having friends stay briefly are unlikely to satisfy the test on their own.
It is also worth knowing that the holiday home exemption now extends to properties held in company or trust structures, provided the relevant conditions are met. The application process for those structures can be more involved, and it is worth getting advice before lodging.
Keep a diary.
Record every stay – the dates, who was there, and for how long. The SRO can request this kind of documentation during an audit, and contemporaneous records are far more useful than trying to piece things together from memory later.
Exemptions from vacant residential land tax
There are a number of exemptions, but they are specific, and most require an active application rather than applying automatically.
- Principal place of residence
Your main home is generally exempt
- Genuine occupancy
Properties that meet the required occupancy threshold are not considered vacant
- Holiday homes
The four–week rule applies as described above, and the owner must have a home in Australia.
- Temporary absence
In some circumstances, properties may still qualify if the absence is temporary and meets certain conditions.
- Deceased estates
Properties forming part of a deceased estate may be exempt for a limited period, but this depends on how long the property remains unoccupied and how the estate is being administered.
- Properties under construction or renovation
A time–limited exemption applies, but it requires notification and the property must become habitable within a reasonable period.
The detail around exemptions can be nuanced, so it is worth considering your situation carefully rather than assuming an exemption applies.
What are the risks of getting it wrong?
The most common issue with VRLT is not the tax itself – it is failing to recognise that it applies in the first place.
This can lead to unexpected tax assessments, backdated liabilities, penalties and interest, and ongoing compliance issues. The SRO can impose a penalty tax of up to 90% of the assessment amount, on top of interest charges. These penalties can apply whether the oversight was deliberate or simply a case of not knowing the rules.
Notification obligations
Property owners are required to actively notify the SRO if their property is vacant. This is not done automatically, and the obligation applies even if you believe your property is exempt. The SRO determines whether an exemption applies after you have lodged your notification – assuming you are exempt and not notifying is still a breach.
Notifications are generally due by 15 February each year, covering how the property was used in the preceding calendar year. If you have missed a previous deadline, notifying the SRO promptly can help minimise penalties and interest.
Once an initial notification has been made, you only need to notify again if circumstances change – for example, if the property becomes vacant after a period of tenancy, or if an exemption no longer applies.
What property owners should do now
If you own residential property in Victoria, it’s worth taking a proactive approach. Start by asking: how many days was the property actually occupied last year? Do you have records to support this? Has the use of the property changed recently?
Keeping clear records of occupancy, including leases, utility bills, or booking history, can make a significant difference if your position is ever reviewed.
It can also be helpful to step back and look at how your property fits into your broader financial position. For example, how property ownership interacts with your overall estate planning, whether structures like a life interest in a will may be appropriate in some circumstances, and how assets pass on death, including superannuation through a binding death benefit nomination. For those in de facto or second relationships, it is also worth considering whether ownership arrangements should be reviewed alongside a binding financial agreement.
These aren’t issues everyone needs to deal with immediately, but they often come up together – particularly for clients with multiple properties.
Understanding your position
Vacant residential land tax now applies more broadly across Victoria than it did in the past, and many property owners are still catching up with what that means in practice.
The key is understanding how your property is actually used and whether it meets the occupancy requirements. A small oversight can lead to larger issues down the track.
If you’re unsure whether vacant residential land tax applies to your situation, getting advice early can help you understand your obligations and plan accordingly.
Get in touch with our property solicitors today and find out what your options are.
