If you own land in Victoria, you may have to pay land tax.
What you may not have known is that you may still be required to pay land tax even if the land in question is empty, vacant, or not being used at all!
Despite the similar names, vacant residential land tax (which we’ll call “vacant land tax” for simplicity) is not the same as land tax.
So, what’s the difference? Our personal tax accountant in Melbourne explains.
Introducing: vacant land tax
All Melburnians understand that our city is experiencing a housing shortage.
Here’s something you might not have known, however: many Melbourne homes are sitting there, completely empty.
In 2017, it was estimated that approximately 82,000 homes in inner Melbourne alone weren’t being used.
To address this, vacant residential land tax was introduced by the State Revenue Office (SRO) in 2018 in an effort to encourage property owners to put their empty dwellings back on the market.
Where does this tax apply?
Under the current scheme, vacant land tax only applies to residential properties that are unoccupied for six months during the calendar year (these six months don’t need to be continuous).
That means houses, apartments and any other property that is used primarily for living.
It does not include retirement villages, Airbnb properties or empty lots of land.
It’s important to note that not all areas of Melbourne are subject to this tax. Vacant land tax applies in 16 specific councils:
- Moonee Valley
- Glen Eira
- Port Phillip
- Hobsons Bay
It’s also important to mention that just like land tax, vacant land tax is also charged on residential construction sites. This means renovators and builders will have to pay up.
Luckily, the amount paid in vacant land tax is rebatable in the following year, giving you your money back.
Furthermore, retirement planning can have its own set of challenges, including understanding the work test exemption. Fortunately, we have a detailed guide where work test exemption is explained by our personal accountant.
What vacant residential land tax isn’t
The tax code is notoriously difficult to understand, with so many different taxes, levies and rebates to consider. Many of these different obligations share similar-sounding names.
As personal tax accountants, we field a lot of questions about property-related taxes.
Some taxes that clients frequently confuse for vacant land tax include:
What makes land tax different?
Unlike vacant land tax, run-of-the-mill land tax is applied to all privately-held land in Victoria, with the exception of the owner’s primary residence, charities and primary production land (farming and mining).
What makes absentee owner charge different?
Absentee owner charge applies specifically to vacant properties owner by non-Australian citizens and businesses.
Unlike the federal annual vacancy fee (see below), this charge applies on both vacant and occupied residential properties.
What makes the annual vacancy fee different?
While the annual vacancy fee also covers vacant or underutilised residential properties, this particular tax is an additional tax targeted specifically towards overseas owners of empty or underused residential properties.
In another related article, if you’ve found yourself puzzled about Fringe Benefits Tax (FBT), personal accountant explains what it means to give you clearer insights.
How much will I have to pay up?
Now for the part you’re interested in: how much you’ll have to pay in vacant land tax.
Before we discuss that however, we need to explain Capital Improved Value (CIV).
Essentially, CIV is a technique for valuing a plot of land. By adding together the market value of the land plus buildings and any other capital improvements, the SRO obtains the total value of the land and everything on it.
This is the figure used by councils to calculate rates, as well as vacant land tax.
Vacant land tax is charged on this value at a 1% rate. As an annual tax, you’ll only have to make one payment.
Click here to calculate your vacant land tax liability.
On a related note, understanding taxes can be as challenging as wrapping your head around different financial concepts, like defined benefit income streams.
Need help figuring out your tax obligations?
Call a personal tax accountant in Melbourne
Determining your personal tax obligations can be a nightmare on your own.
Navigating through the tax implications doesn’t just stop with understanding the obligations. There’s also the matter of ATO’s data-matching procedures. If this is new to you, our tax accountant in Melbourne explains ATO data matching in a comprehensive piece.
Even though EOFY is still several months away, it’s always good to have an idea of what your tax liability is to minimise the stress of tax season.
If you’re struggling with your various tax obligations, Bruce Edmunds & Associates can help.
Our experienced team of tax accountants provide a range of services, from personal to business tax accounting. We’ll help you break down and understand your tax obligations using language you understand and easy-to-understand reports.
In addition to helping you with your tax return, our personal tax accountants in Melbourne can also provide assistance with:
Give us a call today on (03) 9589 5488, or click here to arrange a friendly conversation about your personal tax liability.