The Impact of Vacant Residential Land Tax on Construction Sites

In Victoria, the Vacant Residential Land Tax (VRLT) applies to residential properties that are unoccupied for more than six months in a calendar year. This could significantly affect builders and developers holding residential sites, especially those not yet occupied or still under construction.

What Do Builders Need to be Aware of?

Two-Year Exemption Period: If a site is under construction or substantial renovation, it is exempt from VRLT for up to two years from the date the building permit is issued. If construction or renovation is not completed within this timeframe and the property remains unoccupied, VRLT may apply.

It is important to note that the two-year exemption begins from the date the building permit is issued, not when construction begins—so careful project planning is crucial to avoid unintended tax liability

Definition of Vacancy: A property is considered vacant if it is not occupied for more than six months in the preceding calendar year.

What Happens if Construction Takes Longer Than Two Years?

If a project extends beyond the two-year exemption window, the property may become liable for VRLT unless the builder applies for and is granted an extension.

This extension is only limited to exceptional reasons such as the builder going into liquidation. In this instance the Commissioner of State Revenue may allow an extension of up to two additional years. This extension is not automatic and requires an application

Extended Exemption for Principal Place of Residence (PPR): If the property under construction is intended to be the owner’s PPR, and certain conditions are met, an exemption from land tax (and consequently VRLT) may be available for up to four tax years after the year in which construction commenced. Specific criteria must be satisfied to qualify for this exemption

Does VRLT Apply to Projects Commenced Before 2025?

Yes, but with some transitional relief.

If the land was Under construction or uninhabitable as of 31 December 2023, then the site will not be considered vacant until 31 December 2025, meaning the earliest it may become liable for VRLT is the 2026 tax year.

This offers some breathing room for current long-term projects already underway.

Vacant Land & VRLT in 2026?

Starting 1 January 2026, unimproved residential land in metropolitan Melbourne that has remained undeveloped for at least five years may also attract VRLT. This extension broadens the tax’s reach to include vacant residential blocks awaiting development

How is VRLT Structured?

The Vacant Residential Land Tax (VRLT) in Victoria is structured as follows:

• First Year of Vacancy: 1% of the property’s capital improved value (CIV*).
• Second Consecutive Year of Vacancy: 2% of the property’s CIV.
• Third and Subsequent Consecutive Years of Vacancy: 3% of the property’s CIV.

*The CIV represents the total value of the land and any improvements, such as buildings, and can be found on your council rates notice.

VRLT is designed to encourage property owners to make residential properties available for occupation, thereby addressing housing availability concerns.

If you are constructing, renovating, or holding vacant land, it is crucial to plan ahead, monitor deadlines, and seek advice to avoid costly penalties.

If you’re unsure how VRLT may impact your project, it’s always wise to seek professional advice early.

Key Takeaways for Builders

• The two-year exemption starts from the permit date, not the construction start date—timing matters.
• Delays beyond two years can trigger tax liability unless occupancy is achieved, or an exemption is granted.
• Extensions are possible, but only in exceptional cases and require formal approval.
• Projects already underway before 1 Jan 2025 may be exempt until 2026 if under construction by the end of 2023.