When is vacant residential land tax assessable for off the plan residential properties?
From 1 January 2018 vacant residential land tax (VRLT) is payable on inner and middle Melbourne residential properties in 16 council areas. VRLT applies if the property is vacant for more than six months cumulatively in the preceding calendar year. The tax was introduced to help address the lack of housing supply in Victoria.
VRLT only applies to vacant residential properties. The annual tax payable is 1% of the capital improved value of the taxable land specified in the council rates notice for the property.
A residential property is considered vacant unless it was used and occupied for a period of more than six months in the preceding calendar year by:
- the owner;
- a permitted occupier who can be a family member or friend;
- a person under a lease; or
- a person under a short-term letting arrangement.
The six month period does not need to be continuous.
A residential property will not be considered vacant and will not be subject to VRLT in the following circumstances:
- Holidays: Absence of the property owner from their principal place of residence for not more than six months;
- Deceased estates: If the property was used and occupied as the owner’s principle place of residence immediately before their death, the property is not subject to the tax for a period of up to three years.
- Moving into a retirement home or residential care facility: If the property was used as the owner’s principle place of residence (and was exempt from land tax) prior to moving into a retirement home or residential care facility;
- Construction and renovation: Properties that are being constructed and renovated will not be considered vacant for up to two years from when the construction or renovation commences.
New Construction (Off the Plan Apartments)
Newly constructed residential premises will be exempt from VRLT for two years after the building permit for the land is obtained. If the exemption period lasts for more than six months of the final calendar year of the two year exemption, then the six month vacancy does not accrue for the remainder of that year.
For example, if a building permit is issued in August 2016, the property will be exempt until August 2018. For the 2018 calendar year there are only four assessable months remaining (September to December), so the property would not be subject to tax in 2018. The property would be subject to VRLT in 2019 if it remained vacant for more than six months in that calendar year.
The two year exemption period ends immediately when an occupancy permit or certificate of final inspection is issued for the property. For example, if a building permit is issued in August 2016, the two year exemption period would commence on that date, but if the occupancy permit issues in May 2018, the exemption period ends in May 2018. So if the property remains vacant for the remainder of the 2018 calendar year (seven months) it would be subject to VRLT for that year.
If construction is not finished within two years from when the building permit is issued, a further exemption can be sought as part of the mandatory reporting to the State Revenue Office. An acceptable reason for an extension might be a series of events which are beyond the landowner’s control which therefore delayed the start or finish of the renovations for the property to be occupied.
Reporting to the State Revenue Office
If a property remains unoccupied for more than six months during a calendar year the owner has to notify the State Revenue Office by 15 January of the following year. Owners who miss the deadline are still encouraged to notify about vacant property as soon as possible. Late disclosures are treated more favourably than vacant properties identified through an investigation.
Failure to notify about the possession of vacant property is considered to be a default under the Taxation Administration Act 1997 (Vic) and penalty tax may be applied to the amount assessed.
There may be penalty tax of:
- 5% of the taxable amount if the owner voluntarily tells about their vacant residential properties before an investigation is started,
- 20% if the owner tells about their vacant residential properties after an investigation is started, and
- up to 90% if it’s believed that an owner intentionally disregarded the law and hindered the investigation.
VRLT reporting is due 15 January 2019. If you have newly constructed residential property that may be subject to vacant residential land tax, or are intending to construct, renovate or develop such property, please contact us to discuss.