It’s a Victorian tax that raked in $11.3 million from investors sitting on empty residential properties last year.
But analysis suggests the state’s Vacant Residential Land Tax (VRLT) could be missing the vast majority of vacant homes eligible for the charge, less than a year out from a planned expansion of the levy.
In 2023, a total of 1,013 properties were found liable for the tax — up from 910 properties the year before, according to State Revenue Office (SRO) data.
The tax is imposed when a residence sits empty for six months or more of the year.
Basically, it’s meant to push investors to fill or sell their empty properties.
Most vacant homes are being missed, data suggests
Getting a handle on the number of empty residential homes in Victoria is trickier than you might imagine. There can be lots of reasons why a home is empty on census night, for example.
But Grattan Institute deputy program director of economic policy Joey Moloney said the most relevant research came from the Australian Bureau of Statistics (ABS).
Its research found 1.3 per cent of properties nationally, and 1.4 per cent in Victoria, showed no sign of recent use (an insight gleaned from electricity usage).
These findings were drawn from data from mid-2021, meaning that data would also be affected by COVID lockdowns.
The ABS research showed the local government areas (LGAs) covered by Victoria’s VRLT actually had markedly higher empty home rates, with between 1 per cent and nearly 5 per cent of properties showing no electricity usage.
If these inactivity rates were applied to the current housing stock, it would suggest almost 23,000 properties in the VRLT zone sit empty – roughly 23 times the number being hit with the tax.
Mr Moloney said most empty homes were likely missed.
“Even though I think 23,000 is probably a bit on the high side of the true number of genuinely vacant dwellings intended to be caught by the VRLT, the 1,013 number of those actually caught also looks low,” he said.
“I think it speaks to how hard a tax like this is to enforce, or more specifically, how easy it is for a property owner to slip into one of the exemptions.”
Mr Moloney said if an owner was willing to leave their property empty, they were already happy to forego the rental income, so a larger tax bill was unlikely to make a huge difference to how they used or kept the property.
“We probably don’t think vacancy taxes are a particularly effective policy. It’s not a bad policy, it’s just not a big-ticket item,” he said.
He said many people thought vacant homes were a bigger issue than they actually were.
The tax will soon apply across Victoria
From the start of 2025, VRLT will be expanded to apply to residential land across all of Victoria in a bid to create additional revenue.
A new progressive rate will be also be introduced, where investors are charged more for every successive year a rental is left empty.
VRLT revenue is included in the state budget’s land tax, which is expected to increase from $6.12 billion in the 2023-24 year to $6.52 billion in 2024-25, although what part of that is down to the VRLT was unclear.
From 2026, VRLT will also apply to all unimproved residential land in metropolitan Melbourne that has remained undeveloped for at least 5 years but is capable of residential development.
Exemptions set to be expanded
While the tax take from the VRLT has climbed, so too has the amount forgone due to exemptions and concessions.
State budget documents showed $6 million of VRLT revenue was foregone due to exemptions and concessions in the 2023-24 year, a figure expected to rise to $21 million in 2024-25, and $42 million for each of the three subsequent years.
Exemptions that can be applied to empty properties include those used as holiday homes at least one month a year, properties used for work, new residential properties where ownership changed during the year and newly developed properties where ownership was unchanged.
As the VRLT expands to the whole of Victoria, the exemptions available have also expanded. From 2025, for example, the holiday home exemption may apply if a family member or trust beneficiary uses the property for at least four weeks.
Jordie van den Berg is a Melbourne-based housing advocate and online influencer who goes by the handle Purple Pingers.
Mr van den Berg runs a website where renters post substandard rentals and has courted controversy for posting about vacant properties in Melbourne where squatters could stay.
He said 1,013 properties sounded like the tip of the iceberg to him, but that it was great to see more vacant properties being picked up by the VRLT.
“I know personally about hundreds of vacant homes in Melbourne, let alone investment properties, that are not occupied for more than six months of the year,” he said.
Mr van den Berg said he believed the VRLT had relied too heavily on voluntary reporting in the past.
“A number of people, myself included, raised some concerns with this, because what landlord is going to put up their hand to voluntarily pay more tax,” he said.
In more recent times, he said the SRO had taken an increasingly active stance, evidenced by a recent investigation of five apartment buildings in Melbourne that had found 177 properties liable for the tax.
It was reported that the investigation would expand to 13 more apartment towers across the city, as well as houses in the inner and middle suburbs of Melbourne.
An SRO spokesperson declined to give details on how that investigation was progressing but said compliance activity was continuing.
“The SRO undertakes extensive data-matching activities with other government agencies and uses powers to request data and information from other sources to actively review whether owners of vacant residential land have correctly registered,” he said.
He said the SRO was also open to receiving tip-offs, which could be shared on the agency’s website.
The VRLT is calculated at 1 per cent of the capital improved value (CIV) of taxable land, which is the value of the land, buildings and any other capital improvements made to the property as determined by general valuation processes.
For example, if a property had a CIV of $1 million, the tax is $10,000.
Failing to flag a property as liable for the VRLT is a notification default under the Taxation Administration Act 1997.
Those attempting to evade the tax may be liable for a penalty tax of 5 per cent if they voluntarily told the SRO about their vacant residential properties before an investigation was started, 20 per cent if an investigation was underway, and up to 90 per cent if the SRO believed the taxpayer intentionally disregarded the law and hindered investigations.
Property investors warn against levy enforcing ‘mandate’ on owners
Property Investors Council of Australia (PICA) chair Ben Kingsley supported the expansion of the VRLT to combat land banking of land without homes on it.
“At the end of the day, land just sitting vacant when we have a rental and housing crisis isn’t providing a productive use,” he said.
“Hopefully, it’s about changing behaviour, and I don’t mind that it’s the intent of the legislation to get those vacant blocks built on.”
He disagreed, however, with the VRLT being imposed on investors who left their already-built properties vacant, saying owners should be allowed to enjoy these properties as they wished.
“I don’t like this idea of a mandate that, because I own it, and because it’s needed, it ultimately needs to be shuffled into some type of social housing policy,” Mr Kingsley said.
Given the relatively low number of properties incurring the VRLT, he suspected the properties belonged to international owners, rather than locals.
“I can’t see why an investor or anyone who owns a property, given the amount of tax and charges and increased costs, through interest rates and so forth, that would just happily leave a property vacant,” he said.