The Victorian Government has recently legislated new rules regarding when land qualifies for the Principal Place of Residence (“PPR”) exemption from land tax under the Land Tax Act 2005 (Vic). The new rules will commence on 1 January 2027 under the Building Legislation and Treasury Legislation (Tax Relief) Amendment Act 2026 (Vic).
This article explains key changes to the PPR exemption that affect three common scenarios for landowners:
- Scenario A – Building or renovating your future home
- Scenario B – Short projects that start and finish in one calendar year
- Scenario C – Leaving a joint PPR to build or renovate a new home (“dual PPR”)
If you are, or are planning to, build or renovate your home, this article is for you.
You might be thinking, “If I start building my home and it takes longer than expected because the builder stops work, will I have to pay extra land tax when it is not my fault?” Or you may be worried about how delays in starting construction will affect your land tax position. You may also be wondering how the rules apply to shorter projects that start and finish within the same calendar year, or to your situation if you have moved out of your PPR to build or renovate a new home.
The new laws are designed to improve the current regime and better accommodate the reality of construction and renovation delays for owners. Four key changes to the PPR exemption are outlined in this article.
Change 1 – More Flexible Definition of “Works Start Date”
Snapshot: You can now choose a sensible works start date, so your four-year construction exemption isn’t wasted on permit delays or pre-build lead times.
Currently, the construction exemption is generally conditional on works being completed within four years of the “works start date”. That date is the earliest of your planning permit, your building permit, or the day construction or renovation actually starts. This can produce inequitable outcomes where there is a long delay between approvals and the construction starting on site, because part of your exemption period is effectively wasted.
From 1 January 2027, the new regime becomes more flexible. Permit issue dates are treated as preparatory steps, and you can choose when the exemption period starts. In practice, the “works start date” will be the earlier of:
- The date you nominate as a works start date, or
- The date construction or renovation actually begins.
Let us introduce Laura…
Laura gets a planning permit in 2022, but construction did not start until 2025. Under the new rules, she can nominate 2025 as the works start date, so her four-year construction exemption runs from when building actually begins, instead of being partly used up amid permit delays.
Change 2 – exemption duration better accommodates delays.
Snapshot: The four-year construction exemption remains, but with a flexible works start date and a six-month window to move in after completion, the rules now better accommodate ordinary delays, while the two-year extension remains available, though the new framework suggests these will be needed less often.
Four-Year Exemption Period: Under the current law, the construction exemption is available up to four tax years from the works start date. This four-year period is the maximum window in which land can be exempt while a future PPR is being constructed or renovated.
From 1 January 2027, that four-year cap will remain. However, greater flexibility around the works start date means owners are less likely to “waste” part of that exemption period on permit delays, and many ordinary construction overruns can now be managed within that standard four-year window, reducing how often an extension from the State Revenue Office is needed.
Qualifying Occupation Date: Alongside the exemption cap is a second concept – the “qualifying occupation date”. It determines when the owner must start occupying the completed residence as their PPR for the exemption to apply. Under the current legislation, that date is effectively tied to both completion of the works and elapsed time (including the four-year limit).
From 1 January 2027, the qualifying occupation rules are simplified: the qualifying occupation date is set at 6 months after the works finish date only. This new definition breaks the old link to the four-year period, so where construction is delayed beyond four years, owners are no longer penalised by an arbitrary occupation deadline. Instead, owners simply need to move in within 6 months of completion.
Extensions for Exceptional Delays: If a construction project still runs past the four-year limit, the tax office can still grant an extension of up to two years in special circumstances – for example, if the contracted builder goes into liquidation and causes major delays. Overall, the rules are now less strict about deadlines and more about recognising the genuine effort to finish the build and move into the home as your main residence.
Let us introduce Emma….
Emma starts planning her new home in 2022, but after permit delays and a builder change, construction does not finish until mid-2028. Under the new rules, Emma nominates mid-2024, when construction started, as her works start date. The four-year construction exemption runs from that nominated date, and her occupation requirement is simply that she move in within six months of completion. Even though the overall project spans more than four years from the initial planning approval, Emma will not be expected to adhere to any arbitrary occupation deadline. If she moves in within six months of completion, the exemption can continue. In an exceptional case, such as her builder becoming insolvent and causing further delay, she can still apply for the additional two years under the extension discretion.
change 3 – works completed in the same calendar year
Snapshot: If your build or renovation is completed in the same calendar year, but you don’t move in by 31 December, the SRO can defer land tax for up to six months. Move in by 1 July and you avoid land tax for that year.
The third element of the legislative changes concerns amendments to the deferred tax regime for residential land that is intended to become your principal residence.
At present, the SRO can defer land tax for up to six months to give an owner time to move into land that is expected to be their home and meet the minimum six-month residential requirement. This deferral power is framed in general terms and does not specifically accommodate construction projects that finish later in the calendar year.
From 1 January 2027, the same six-month deferral is expressly tailored to construction and renovation circumstances where works finish late in the calendar year. In broad terms, the SRO may defer land tax for six months where:
- The property was not occupied on 31 December of the previous year;
- The construction or renovations commenced in that previous year and finished on or after 1 July in that year;
- The land was covered by the exemption (or had a works start date) in that year;
- The SRO is satisfied that the owner intends to move in and use the property as their PPR in the first half of the tax year (that is, by 1 July).
If the owner successfully moves in by 1 July of the following year and meets the PPR conditions, the deferred land tax bill is not payable. If they do not move in by this time, the deferred land tax will be due. Accordingly, these amendments relax the pressure on landowners to move in as soon as construction or renovation projects are completed.
Let us introduce Mordi…
Mordi renovates his home in 2027. Works run from March to October 2027, and the construction exemption applies for Mordi in that year. The property is, however, still empty on 31 December 2027. Mordi moves back in during February 2028. Because Mordi successfully moved in before 1 July 2028, the SRO can defer his land tax and no land tax is payable for 2028.
CHANGE 4 – DUAL PPR FOR DEPARTING JOINT OWNERS
Snapshot: If you move out of a jointly owner PPR to build or renovate a new home, you may be able to keep claiming PPR on your share of the former home for a short period, provided certain conditions are met and you don’t double-claim.
Under the current dual-PPR rules, a joint owner who moves out of a shared residence to build or renovate a new home elsewhere can, in some circumstances, continue to claim the PPR exemption on their share of the former home. In practice, however, the rules have been relatively ambiguous about how long the departing owner can continue to claim PPR on the old home and exactly how the “no double-claiming” requirement operates.
From 1 January 2027, the legislative changes tighten and clarify the dual-PPR rules, particularly in circumstances where one joint owner vacates the residence. The Building Legislation and Treasury Legislation (Tax Relief) Amendment Act 2026 (Vic) amends the Land Tax Act 2005 (Vic) so that:
- a departing joint owner who leaves the former PPR to construct or renovate a new PPR elsewhere can retain the PPR exemption on their share of the former residence, but only for a short, defined period; and
- the above period is shortened to a maximum of one further year, rather than two, and is conditional on the departing owner not claiming a PPR-related exemption over another property at the same time.
As a result, the amendments reinforce two principles. First, a departing joint owner should not be disadvantaged immediately when they move out, provided the co-owner continues to live in the original home as their PPR. Second, dual PPR claims are now expressly limited in time, and owners are expected to make a conscious choice about which property they wish to claim the exemption on.
Let us introduce Sunny and Sandy…
Sunny and Sandy are siblings who own a house in Hampton together. In 2027, they both live in the Hampton house as their PPR. The Hampton property is valued at $2.2 million. Sunny, a builder, purchases a block of land in Sandringham for $800,000 to build his own home and moves out of the Hampton property, while Sandy continues to reside there.
Under the new rules, in 2027 Sunny can continue to claim the general PPR exemption over his share of the Hampton Property because:
- Sunny lived there for part of the 2027 year;
- Sandy, the joint owner, has kept the Hampton Property as her PPR; and,
- Sunny does not claim a PPR exemption on the Sandringham land in that year.
Sunny will only be able to claim the PPR exemption over his share of the Hampton home for one additional year, and only if he does not claim a PPR-related exemption over another property during that time. Given the Hampton residence is more valuable than the Sandringham land, it is more tax-efficient for Sunny to continue claiming the general PPR exemption on Hampton rather than a construction PPR exemption on the Sandringham land during this overlap period.
WHAT THIS MEANS FOR YOU
If you are building or renovating your home, the new rules that come into effect on 1 January 2027 will provide more certainty and flexibility for the PPR exemption. The legislation better accommodates how long construction exemptions can run, and how late-finishing projects and joint-ownership situations are treated. In many cases, owners will have more control over the timing of their exemptions and enjoy better protection from delays beyond their control.
While the rules simplify the current framework, owners still need to be diligent about the decisions involved. For example, nominating a works start date, timing occupation, and deciding which property to claim as your PPR are all important choices with significant tax consequences.
At KPA Lawyers, we can help you:
- Plan your build or renovation with the PPR exemption in mind;
- Nominate appropriate dates and structure your occupation to maximise available exemptions;
- Navigate joint-ownership and dual-PPR situations to choose the most tax-efficient property to claim as your principal residence.
If you are considering a build, major renovation or a move from a joint PPR, our Property Team would be happy to discuss how these changes may affect your land tax position.
