The property’s CIV includes the value of the land, buildings, and other improvements. The CIV is typically listed on council rates notice.

Some people might not be aware that the 3 per cent CIV can commence from 1 January 2025 in certain situations, as discussed below.

When VRLT applies

Broadly, VRLT applies when land is ‘taxable’, ‘residential’ and ‘vacant’.

· Taxable land – assume all land is taxable unless it is exempt land (e.g., your principal place of residence (PPR) is exempt from VRLT).

· Residential land – this broadly applies to land that is capable of being used solely or primarily for residential purposes.

· Vacant land – land is vacant when it has not been used and occupied for at least six months during the calendar year by either the owner (as the owner’s PPR), the owner’s permitted occupant (as that person’s PPR) or a natural person under a lease or short‑term letting arrangement.

If the above three elements are met for a property in a given calendar year, VRLT will apply. The State Revenue Office (SRO) will issue a notice of assessment the following year. For example, if the property satisfies the above three elements in the 2024 calendar year, the notice will be issued in early 2025.

Rate of VRLT

The rate of VRLT depends on how many consecutive years the residential land has been vacant and liable for VRLT. More specifically, VRLT can be calculated as follows:

First year: 1 per cent of the property’s CIV.

Second consecutive year: 2 per cent of the property’s CIV.

Third consecutive year and beyond: 3 per cent of the property’s CIV.

For example, if a property with a CIV of $1,000,000 remains vacant and liable for VRLT for three consecutive years, the tax would be $10,000 in the first year, $20,000 in the second year, and $30,000 in the third year.

However, in working out what rate of VRLT applies, the location of the land is also relevant. Prior to 1 January 2025, VRLT only applied to the 16 municipalities that make up inner and middle Melbourne (refer to the map at the end of this article). Thus, when determining whether the land has been liable for VRLT for multiple consecutive years, you need to consider whether the land is in inner and middle Melbourne.

Despite the new VRLT legislation implying that there will be progressive rate of VRLT (i.e., from 1 per cent to 2 per cent to 3 per cent), your VRLT rate could go from 1 per cent CIV on 1 January 2024 to 3 per cent CIV on 1 January 2025 for properties in inner and middle Melbourne that have been vacant in years prior to 2025.

Example 1 – property in inner and middle Melbourne

Alex purchased a residential apartment in Melbourne’s CBD during the 2021 calendar year. Alex intended this apartment to be an investment property and has been renting it out through Airbnb since he purchased the property. However, the property has never been rented out for more than six months during any calendar year and thus, is considered ‘vacant’ for VRLT purposes for the relevant years.

Alex’s VRLT per year is as follows:

Note: The ‘tax year’ is the year in which the State Revenue Office issues the notice of assessment of VRLT. This is based on the prior calendar year’s use and occupation of the property. For example, when we refer to the 2025 tax year, the VRLT liability is based on whether the property was considered ‘taxable’, ‘residential’ and ‘vacant’ during the 2024 calendar year.

Example 2 – property outside inner and middle Melbourne (e.g., country Victoria)

Samantha purchased a residential house in country Victoria during the 2021 calendar year. Samantha intended this house to be an investment property and has been renting it out through Airbnb since she purchased the property. However, the property has never been rented out for more than six months during any calendar year.

Samantha’s VRLT per year is as follows:

Conclusion

With the introduction of a progressive VRLT rate from 1 January 2025, property owners should be aware of their potential tax liability and plan accordingly. Many property owners have been caught out with the substantial jump to 3 per cent CIV VRLT liability (i.e., up from 1 per cent CIV) and will continue to pay 3 per cent CIV unless circumstances change. As such, property owners should stay informed about VRLT developments, review potential exemptions, and consider strategies to ensure compliance while limiting any VRLT liability.