Understanding Victoria’s Vacant Residential Land Tax: Key Updates and Implications

The Victorian Government has expanded Vacant Residential Land Tax (VRLT), meaning more property owners may now need to consider whether their property is affected. 

VRLT already applies to vacant homes and to residential properties that have remained uninhabitable, or under construction or renovation for two years or more, across all of Victoria. From 1 January 2026, VRLT is being extended further to also capture certain undeveloped residential land in metropolitan Melbourne. Property owners with stalled or delayed construction projects, or long-held undeveloped land, should review whether they qualify for discretion under the rules. 

These changes make it essential to review how your property is used throughout the year and take steps now to ensure you understand your obligations and potential exemptions. 

Existing VRLT Requirements 

From 1 January 2025, VRLT applies to all vacant residential land in Victoria, including regional areas (previously it applied only to certain inner and middle Melbourne council areas). The tax is based on how the property was used in the previous calendar year. 

For example, if your property was vacant for more than six months during 2025, you may have a VRLT liability for 2026. 

The tax rate depends on how long the property has been liable for VRLT: 

• 1% of the property’s Capital Improved Value (CIV) in the first year 

• 2% in the second consecutive year 

• 3% from the third consecutive year onwards. 

For example, a property with a Capital Improved Value of $1 million that is subject to VRLT for the first year could attract $10,000 of VRLT. If the property remains liable for a second consecutive year, the rate increases to 2%, or $20,000. 

Holiday Home Exemption

A holiday home may be exempt from Vacant Residential Land Tax (VRLT) where it is genuinely used and occupied as a holiday home for at least four weeks, whether continuously or in aggregate, during the preceding calendar year by the owner or qualifying relatives. The relevant principal place of residence (PPR) requirement in Australia must also be satisfied.

From 1 January 2025, the exemption was extended to certain holiday homes held by companies and trusts. Broadly, the property must have been owned by the company, or continuously held in the same trust, since 28 November 2023 (subject to a limited exception for contracts entered into on or before that date), and there must not have been a disqualifying change in the underlying ownership or beneficiary interests.

Additional requirements apply depending on the ownership structure.

• For companies, unit trusts and fixed trusts, qualifying natural persons holding at least 50% of the relevant shares, units or beneficial interests, directly or indirectly, must satisfy the Australian PPR requirement.
• Different rules apply to discretionary trusts. The qualifying persons or their relatives must also satisfy the four-week holiday-home use requirement.

The SRO must ultimately be satisfied that the property is genuinely used as a holiday home.

Who qualifies as “family” for the exemption? 

Your spouse or domestic partner, children (and their partners), siblings (and their partners and children), parents, grandparents, and grandchildren. All qualifying family members’ use of the property can count toward the four-week requirement, whether continuous or over separate periods/visits. 

Importantly, use by friends does not count towards the four-week occupation period. 

If you qualify for the holiday home exemption, you still need to notify the State Revenue Office (SRO) by the applicable deadline, even if you believe the property is exempt. Notifications are currently due by 15 February each year. 

Other Exemptions 

In addition to the holiday home exemption, other VRLT exemptions include: 

• The property changed ownership during the year. 

• The property became a residential property during the year. 

• The property became a residential property in either of the previous two years and ownership has not changed. 

• The owner occupied the property for at least 140 days during the year to attend their workplace or business, and the owner has a PPR in Australia (not available to companies, associations, or organisations). 

• Land that is incapable of being used or developed for residential purposes. 

• Undeveloped land adjoining the owner’s principal place of residence or holiday home. 

From 1 January 2026, land with a residence that was under construction or renovation, or uninhabitable, during the previous year may qualify for an exemption in certain circumstances. 

Changes from 1 January 2026: Undeveloped Residential Land 

From 1 January 2026, VRLT was extended to certain undeveloped land in metropolitan Melbourne that has remained undeveloped for a continuous period of five years or more and is capable of residential development.  

This can include: 

• Land without a home on it 

• Land with a residence that is partially built but has not been occupied. 

The five-year period can include time before 1 January 2026, so land that has already been undeveloped for five years may be affected from 2026. 

The rules apply to eligible land across the metropolitan Melbourne council areas specified by the SRO, rather than only the inner and middle Melbourne areas covered by the earlier VRLT regime. 

Exemptions may be available if: 

• the undeveloped land is incapable of being used or developed for residential purposes. This may be due to the size or shape of the land, its natural features or its environmental condition. The exemption is intended for land where residential development is practically impossible, rather than simply uneconomical or inconvenient. 

• undeveloped residential land is next to or adjoins a principal place of residence or holiday home, such as a garden, swimming pool or tennis court. 

Properties Under Construction or Renovation 

VRLT applies (and has applied since 2025) where a residence has been under construction or renovation, or has been uninhabitable, for two years or more. 

The two-year period generally starts when the relevant building permit is issued, and the work must be substantial enough to require a building permit. 

The SRO may exercise discretion to extend the period where there is an acceptable reason for the delay. 

How can you apply for an exemption? 

If you believe your property qualifies for an exemption, you still need to notify the SRO where required. Exemption notifications are currently due by 15 February each year. You do not generally need to reapply for an exemption each year if your circumstances and the property’s use have not changed. 

What reasons are acceptable for SRO discretion on undeveloped land? 

For the new five-year undeveloped land rule, the Victorian Government has released guidelines outlining acceptable reasons the Commissioner will consider for extending the five-year period, including: 

• Extreme weather damage 

• Unforeseen restrictions 

• Inadequate infrastructure 

• Significant planned appeals 

• Lack of key expertise or personnel 

• Other exceptional circumstances that are genuinely beyond the landowner’s control. 

Economic or commercial factors, such as increased construction costs, supply chain issues or labour shortages, are generally not considered acceptable reasons on their own. 

If you believe your circumstances may qualify for discretion, it is important to notify the SRO and make an application through the SRO vacant residential land tax portal. 

How Can Morrows Help? 

If you own a vacant property, holiday home, undeveloped residential land or a property undergoing significant construction or renovation, it is important to understand whether VRLT applies and whether an exemption may be available.

Please contact your Morrows adviser if you have any questions or concerns regarding your property investments and responsibilities.

We can help you review your circumstances, understand potential VRLT obligations and consider whether any available exemptions or concessions may apply.

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