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Vacant Residential Land Tax (“the Tax”)

April 30, 2018 by Gessica Giordano

In our previous newsletter we touched on the Tax which came into effect on 1 January 2018.  If you own 1 or more residential properties other than your principle place of residence you should be aware of the nature of the Tax and how it is applied.

What is the Tax?

To recap, the Tax is a tax on residential properties located in the inner and middle suburbs of Melbourne which are unoccupied for a period of more than 6 months per calendar year.  The Tax was introduced to encourage property owners to either sell or rent their properties to minimise vacancies in order to increase housing affordability.

What is residential property?

Residential property includes:

Residential property does not include:

To which residential properties does the Tax apply?

The Tax only applies to vacant residential properties located in the following municipal districts:

How much tax is payable?

The annual tax payable is 1% of the capital improved value of the taxable land specified in the council rates notice for the property. 

When is a residential property considered vacant?

A residential property is considered vacant unless it was used and occupied for a period of more than 6 months in the preceding calendar year by:

The 6 month period does not need to be continuous.  So if a property listed on Airbnb is only let for a cumulative period of less than 6 months during the calendar year it will be subject to the Tax in the following tax year.

However, for the 2018 tax year, the period for calculating the Tax commences on 1 May 2017 not on 1 January 2017 (as the legislation was introduced into the Victorian Parliament in May 2017). This means that if the property was used and occupied for a period of more than 2 months from 1 May 2017 to 31 December 2017 the Tax will not apply.

A residential property will not be considered vacant and will not be subject to the Tax in the following circumstances:

Holidays

Deceased estates

Moving into a retirement home or residential care facility

Construction and renovation

The 2 year period may be extended by the Commissioner if it is satisfied that there is an acceptable reason for the construction or renovation not being completed within the 2 year period.  It must usually involve something beyond the control of the property owner which delayed the start or finish of the construction or renovation.

A residential property will be considered vacant and subject to the Tax:

Property advertised for rent or sale

Exemptions from the Tax

Holiday homes

An owner must use and occupy their holiday home for a period of at least 4 weeks (whether continuous or aggregate) in a calendar year for the Tax exemption to apply.  Providing this requirement is met, family and friends can also use the property. This exemption will only apply to 1 holiday home.

Residential property used for work purposes

A residential property is exempt from the Tax if the owner:

Change of ownership

Property that changes ownership in the year preceding the tax year is exempt from the Tax.  For example, if a property is purchased and transferred during 2018, it is exempt from the Tax for the 2019 tax year.

New residential properties

Property that becomes residential property during the year preceding the tax year is exempt from the Tax.  For example, if an industrial property is converted into residential apartments in 2018, it is exempt from the Tax for the 2019 calendar year.

Who pays the Tax? 

The owner of the property as at midnight on 31 December of the preceding year is liable to pay the Tax.  Mortgagees in possession and trust beneficiaries are not liable to pay the Tax.

Notifying the State Revenue Office (“the SRO”)

If a tax exemption applies to a property, the owner must notify the SRO by 15 January each year and advise which exemption applies.  Penalties under The Taxation Administration Act 1997 (Vic) apply if an owner fails to notify the SRO by the due date.

The SRO also carries out monitoring and compliance activities to ensure that vacant residences are being declared.  This involves comparing data with that of other state and federal agencies and conducting investigations. How vigorously the Tax will be enforced by the SRO is yet unclear.

Late disclosures are dealt with more favourably than if the SRO identifies vacant properties following an investigation. This is particularly relevant for the 2018 tax year as many property owners may still be unaware of the Tax.

If you are unsure about whether the Tax applies to you or could apply to you in the future as your circumstances change, please contact us for assistance.

For further information please contact:

Gessica Giordano
+61 3 9088 0488
glg@whiteandmason.com.au

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