Tax on vacant residential property

As part of a string of new housing initiatives announced in last year’s Victorian State Budget, a new Vacant Residential Property Tax has taken effect from 1 January 2018.

The tax – charged at a rate of 1% of a property’s capital improved value of taxable land – has been designed with the intention of reducing the high number of houses and apartments being left vacant in the inner and middle ring of Melbourne, by owners who have been previously happy to leave their properties empty and accumulate capital gains instead.

It is hoped by the government that this tax will trigger an increase in housing supply across the state, and release pressure on house and rental prices by encouraging landlords to offer their vacant properties for rent or sale. It is predicted to generate $80 million in revenue for the state over four years.

Who will have to pay this new tax?

The Vacant Residential Property Tax will only apply to the owner of a property that is unoccupied for more than six months within a calendar year. This six months does not need to be continuous.

This tax is self-reporting, meaning that owners of vacant residential property will be required to notify the State Revenue Office (SRO) of the extended vacancy (by 15 January each year).

Whilst the tax applies from 1 January 2018, it will be based on use and occupation in the preceding year (ie. an owner’s tax liability for 2018 will be based on use and occupation in 2017). Owners who miss the deadline are encouraged to notify the SRO about vacant property as soon as possible. Late disclosures are treated more favourably than if vacant properties are identified as the result of an investigation.

Are there are exemptions?

There are a number of practical exemptions applied to this tax – recognising legitimate reasons as to why a property may be vacant. Aside from the existing exemptions in place for land tax purposes, new exemptions include:

• holiday homes
• city apartments/homes/units used for work purposes
• property transfers during the preceding year
• new residential properties

Does this tax apply to all properties?

No; the tax only applies to vacant residential properties located in Melbourne’s inner and middle suburbs. Properties outside these suburbs are not subject to the tax.

The tax applies to properties in these local council areas:

• Banyule
• Bayside
• Boroondara
• Darebin
• Glen Eira
• Hobsons Bay
• Manningham
• Maribyrnong
• Melbourne
• Monash
• Moonee Valley
• Moreland
• Port Phillip
• Stonnington
• Yarra
• Whitehorse

What does this mean for me?

For many of our clients, this tax will not apply as we recommend against keeping your investment property vacant. If your property is managed by The Hopkins Group, we pride ourselves on minimising vacancy and ensuring your property is always tenanted.

However, if you do own a property that you are keeping vacant and is not exempt from this tax, please contact your adviser to discuss the implications of this in the context of your broader financial strategy.

Where can I learn more?

The SRO provides a comprehensive summary of the tax exemptions and implications on its website. Alternatively, if you would like to discuss the leasing of your vacant property, contact our property management team today.

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General Advice Warning: This blog may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial advice prior to acting on this information.