Are you liable to pay this new tax on residential property in Victoria?

There’s a new tax for Victorian property owners which became effective on January 1^st 2018.

In last year’s Victorian State Budget, a new Vacant Residential Property Tax was introduced and most property owners know nothing about it!

This tax is charged at a rate of 1% of a property’s capital improved value.

For example, if the taxable land has a Capital Improved Value  of $500,000, the applicable tax is $5000.

The new tax became effective on January 1^st 2018 and is based on occupation of your property in the preceding year — in other words starting in 2017.

According to the Government the aim of the tax is to create an increase in housing supply and provide rental relief by encouraging those landlords who are currently leaving their properties vacant in the inner and middle ring suburbs of Melbourne (read: foreign owners) to either sell their properties, or place their properties on the rental market and increase supply or pay the tax.

Interestingly Government forecasts predicted this new tax will generate $80 million in revenue over the first four years.

Which brings up the question: Is the tax really to help rental affordability or is it another gouge at foreign investors?

Who will have to pay this new tax?

The tax will only apply to the owner of a property that is unoccupied for more than six months in any calendar year and this six months does not need to be continuous.

This new Vacant Residential Property Tax is self-reporting, which means that property owners will be required to notify the State Revenue Office of the extended vacancy by the 15^th of January each year.

Does this tax apply to all properties?

No; the tax only applies to vacant residential properties located in 16 specified Melbourne’s inner and middle suburbs.

There are also a number of sensible exemptions recognising legitimate reasons why a property may be vacant, including:

• holiday homes
• city dwellings that are used for work purposes
• property transfers during the preceding year
• new residential properties

In which municipalities does this tax apply?

Properties which are located in the following 16 council areas and which are left unoccupied for more than six months of the previous calendar year, attract the Victorian Government’s vacant residential land tax.

Properties not in the following suburbs will not be subject to the tax.

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

How will this affect you?

Most Australian property investors rely on the rental returns of their investment properties to pay their mortgage, so they don’t leave their properties vacant and won’t be subject to this tax

On the other hand, I’ve noticed that a proportion of foreign buyers prefer to keep their properties in new condition and leave them vacant.

Clearly, they’re investing for different reasons to local investors — they’re often looking for somewhere to stash their cash securely and they’re hoping for capital gains.

Yield is not important to these investors.

If you’d like to understand more about this tax, which by the way has also been introduced in a number of overseas countries, the State Revenue Office explains it in detail here.