Vacant Residential Land Tax: A Case Study in Desperation-Driven Tax Policy

/

Another Burden for Victorian Property Owners in a Struggling Economy

In a move emblematic of a financially desperate and directionless government, the State of Victoria continues to expand its Vacant Residential Land Tax (VRLT)—a levy originally introduced in 2018, now metastasising across regional and metropolitan municipalities with increasing intensity and disregard for property rights or economic logic.

Rather than addressing core issues—such as bureaucratic delays in planning approvals, crippling stamp duty, or stagnant infrastructure delivery—the Victorian Government has chosen to further tax its way out of a structural budget crisis of its own making.

The Legal Framework

The VRLT is imposed under Part 4A of the Land Tax Act 2005 (Vic) and is administered by the State Revenue Office (SRO). As of 1 January 2025, this tax is no longer confined to the inner and middle suburbs of Melbourne. It has been expanded statewide to cover:

  • All residential land in metropolitan Melbourne, and

  • Certain regional growth areas, including Ballarat, Bendigo, Geelong, and Mitchell Shire.

Citations:

  • Land Tax Act 2005 (Vic), Part 4A

  • State Revenue Office of Victoria – VRLT Overview https://www.sro.vic.gov.au/vacant-residential-land-tax

How the Tax Works

The VRLT applies if a residential property is vacant for more than six months (cumulatively) in the previous calendar year. The tax is assessed annually on 1 January, and is levied at:

  • 1% of the capital improved value (CIV) in the first year;

  • 2% in the second year of continuous vacancy;

  • 3% from the third year onward.

The CIV is not some token value—it is the market-based value attributed by local councils for rating purposes, and thus the effective tax can amount to tens of thousands of dollars annually on modest suburban properties.

Example: A property with a CIV of $1,000,000 left vacant for three years would attract a $30,000 per year penalty in its third year under this tax regime.

Exemptions That Help Few

While there are exemptions available—such as for new constructions, deceased estates, or holiday homes—they are narrowly defined, bureaucratically cumbersome, and enforced with reverse onus expectations. The property owner must declare any exemption annually, through the SRO portal, often without clear notice or understanding of how liability arises.

The SRO states:

“If you own vacant residential land that does not qualify for an exemption, you must notify us by 15 January each year.”
(SRO VRLT Guidelines – 2025)

Failure to notify can result in penalties, interest, and further enforcement, compounding the tax burden for non-compliance.

Policy Failure Dressed as Reform

The government markets the VRLT as a housing affordability measure, suggesting that taxing unused properties will force owners to rent them out or develop them, thereby increasing housing supply. However, this argument is deeply flawed:

  1. It assumes all “vacant” properties are available for lease or development – which ignores zoning, heritage overlays, VCAT delays, and utility constraints.

  2. It penalises flexibility in property investment – such as those who acquire land for future owner-occupation, retirement plans, or family use.

  3. It ignores economic reality – with rising interest rates, inflation, and construction cost blowouts, many owners simply cannot develop or sell.

What this tax really represents is a transparent cash grab. Faced with a spiralling debt profile—forecast at $177.8 billion by 2026 according to the Victorian Budget 2023/24—the government is scraping the barrel for new revenue streams.

The Bigger Picture: Taxing into a Hole

Property owners in Victoria already bear an extraordinary share of state taxation:

  • Stamp duty (an upfront transaction tax that discourages mobility)

  • Land tax (levied annually on investment properties)

  • Windfall gains tax (from 1 July 2023)

  • Congestion levies

  • And now, a vacancy penalty for failing to “use” their property in a way that pleases the bureaucracy

There is no clearer sign of fiscal mismanagement than a government expanding its taxation base into areas once considered sacrosanct—such as private ownership of unimproved, unused, or privately held land. This tax is not about fairness. It is not about housing. It is about plugging a growing budget black hole caused by years of government overreach and underperformance.

Conclusion: Owners Should Be Vigilant

We advise all property owners in Victoria—particularly those with unoccupied land or investment properties—to:

  • Review their use and occupation patterns annually;

  • Keep meticulous records (e.g., leases, utility bills, photos of occupancy);

  • Consider their legal position before developing or disposing of assets; and

  • Seek professional advice before the SRO comes knocking.

If you would like tailored advice or need assistance lodging your VRLT declaration, please contact our office.