Introduced in 2018 by the Victorian Government, the Vacant Residential Land Tax, commonly referred to as the vrlt tax, aims to boost housing availability by discouraging owners from leaving residential properties vacant. While initially confined to Melbourne’s inner and middle suburbs, major reforms set to take effect from 1 January 2025 will reshape its impact significantly.
Whether you’re a property investor, homeowner, real estate professional, or developer, understanding the new statewide scope and progressive rates is essential. This article explains the updated structure, who’s affected, potential exemptions, and how to stay compliant.
Understanding the VRLT Tax
The vrlt tax is a policy initiative designed to address urban housing shortages by penalizing extended residential property vacancies. It targets residential land that remains unoccupied for more than six months in a calendar year.
Originally applied only in select metropolitan areas of Melbourne, this tax is now being expanded to cover all of Victoria. The aim is to encourage owners to sell, rent, or occupy properties—effectively putting unused housing stock back into the market.
What’s Changing in 2025?
The Victorian Government has announced substantial changes to the vrlt tax from 1 January 2025. Here’s what you need to know:
1. Statewide Expansion
Previously, the tax applied only to homes in Melbourne’s inner and middle-ring suburbs. Starting in 2025, all residential properties across Victoria will be subject to this tax if they remain vacant for six months or more in a calendar year. This includes regional towns and outer suburban areas.
2. Progressive Tax Structure
The new tax model uses a progressive rate system to penalize long-term vacancies more heavily. The longer a property is left vacant, the higher the percentage of tax imposed on its Capital Improved Value (CIV).
Progressive VRLT Tax Rates (Effective 1 January 2025):
| Years Vacant | Tax Rate on Capital Improved Value (CIV) |
| First Year | 1% |
| Second Consecutive Year | 2% |
| Third Consecutive Year + | 3% |
This tiered approach is intended to escalate the financial burden on habitual non-occupiers.
Who Does the VRLT Tax Apply To?
The vrlt tax is relevant for individuals, trusts, and companies who own residential property in Victoria that remains unoccupied for more than six months (cumulatively) during the previous calendar year. These six months do not need to be continuous.
Common Scenarios Affected:
- Investors who hold properties as long-term capital assets but don’t rent them
- Foreign buyers who purchase and leave property idle
- Developers holding completed but unsold housing stock
- Homeowners with secondary properties they rarely use
Exemptions to the VRLT Tax
While the new rules are broad, there are certain exemptions built into the system. Understanding these can help avoid unnecessary taxation.
Possible Exemptions Include:
- Principal Place of Residence (PPR): Your main home is exempt.
- Recent Purchases: Properties bought within the same calendar year may be excluded.
- Renovations: Homes undergoing substantial renovations may qualify for temporary exemption.
- Deceased Estate: Properties of recently deceased owners are usually exempt for up to two years.
- Legal Restrictions: If a property cannot be legally occupied (e.g., due to council order), an exemption may apply.
Note: Exemptions are not automatic—you must apply and provide evidence to the State Revenue Office (SRO).
Reporting and Compliance
To ensure compliance, owners must report their property status annually to the State Revenue Office. If a property is left vacant, it must be declared, and the appropriate vrlt tax paid.
Key Reporting Requirements:
- Submit declarations through the SRO portal
- Update any changes in usage or ownership
- Retain documents showing occupancy (e.g., lease agreements, utility bills)
- Apply for exemptions where applicable
Penalties may apply for false declarations or failure to report.
How to Avoid Paying VRLT Tax
Here are a few practical steps you can take if you want to avoid the financial hit:
1. Rent the Property
Leasing your property, even for six months and a day, can make it exempt. This is the most straightforward way to avoid the tax while still holding ownership.
2. Use the Property Regularly
Using your property for weekends or occasional stays? Keep detailed utility usage, council rates, or short-term booking records to prove occupancy.
3. Sell Unused Property
With the progressive rate structure increasing annually, holding onto a consistently vacant property will quickly become expensive. Selling may be more economical in the long run.
VRLT Tax vs. Other Property Taxes
It’s important to differentiate the vrlt tax from other levies that affect Victorian property owners:
| Tax Type | Purpose | Applies To |
| Land Tax | Based on total land value above threshold | All landowners (excluding PPRs) |
| Stamp Duty | Charged at property purchase | Buyers of property |
| Council Rates | Funds local government services | All property owners |
| Windfall Gains Tax | Imposed on rezoned land | Developers or speculators |
| VRLT Tax | Discourages long-term residential vacancies | Owners of unoccupied residential property |
Real-World Impact
Example 1: Investor in Ballarat
Sarah owns a townhouse in Ballarat but hasn’t rented it out in over a year. From 2025, she’ll pay 1% of its $500,000 CIV in the first year ($5,000), increasing to $15,000 if left vacant for three years.
Example 2: Holiday Home in Mornington
Mike uses his coastal property only during summer. If it’s not occupied for at least six months, it will fall under the vrlt tax. To avoid this, he may consider short-term rentals for part of the year.
Who Benefits from the VRLT Tax?
The underlying intent of the vrlt tax is social: to unlock housing in areas where affordability and availability are under pressure.
Key Beneficiaries:
- Renters: More properties in the market can ease rental shortages.
- First-time Buyers: Less speculation may reduce competition and prices.
- Communities: Fewer vacant homes reduce decay and improve neighborhood vibrancy.
- Local Governments: Additional revenue for essential services and infrastructure.
Challenges and Criticism
Like any tax policy, the vrlt tax is not without its critics.
Common Concerns:
- Impact on Retirees: Some older owners may not have the capacity to lease or sell easily.
- Ambiguity in Occupancy Rules: Definitions of “vacant” can be difficult to prove or disprove.
- Administrative Burden: Annual declarations and exemption applications may be cumbersome.
- Regional Property Markets: Extending the tax beyond Melbourne could create unintended side effects in smaller communities.
Nonetheless, the government’s position is that the long-term social benefits outweigh these challenges.
Table: Summary of Key VRLT Tax Changes and Details
| Feature | Pre-2025 | Post-2025 |
| Coverage Area | Inner and middle Melbourne suburbs only | Entire state of Victoria |
| Tax Threshold | 6 months of cumulative vacancy | Unchanged |
| First-Year Tax Rate | 1% of CIV | 1% of CIV |
| Second-Year Rate | Not applied | 2% of CIV |
| Third-Year+ Rate | Not applied | 3% of CIV |
| Reporting Requirement | Via SRO portal | Continued via SRO portal |
| Major Exemptions | PPR, deceased estate, renovations | Same, with clearer guidance |
Final Thoughts
As the vrlt tax shifts from a metropolitan-focused policy to a statewide mandate, every Victorian property owner must reassess their holdings and usage patterns. With progressive penalties and strict reporting requirements, understanding and managing property vacancy is no longer optional—it’s essential.
Frequently Asked Questions (FAQs)
Q1: How is “vacancy” defined for VRLT purposes?
Vacancy means a property was unoccupied for more than six months cumulatively during the previous calendar year.
Q2: What documents prove occupancy?
Utility bills, rental agreements, council rate notices, and booking records (for short-term stays) are accepted.
Q3: Is short-term rental like Airbnb enough to count as occupancy?
Yes, if it totals six months or more of booked stays, with records available.
Q4: What happens if I don’t declare a vacant property?
You may face penalties, interest on unpaid tax, and investigation by the SRO.
Q5: How is Capital Improved Value (CIV) assessed?
CIV is determined by your local council and includes land value plus buildings/improvements.
