At KPA, we are committed to working with our clients to assist with all elements of property ownership, including land tax. As we come to the end of another year, we want to ensure our clients pay what is fair when they need to, and avoid any penalties.
“The taxed” – what are we discussing?
This article addresses two taxes, which only apply to properties which you do not occupy as your principal place of residence. We consider these from the perspective of owners who are natural persons. They are:
- Owners of vacant property – Vacant residential land tax
- Owners living overseas – Absentee owner surcharge
“The bad” – the taxes in detail
Vacant residential land tax
If your property (such as your principal place of residence) is exempt from land tax, it will also be exempt from vacant residential land tax (VRLT). Otherwise, most residential properties in Victoria may be subject to VRLT. VRLT is assessed on the previous year’s occupation of the property, so the 2026 VRLT depends on how your property was used or inhabited in 2025.
There are three types of residential properties that may face VRLT liability:
- Residential land with an existing home that has been vacant for more than 6 months in the previous calendar year;
- Residential land with a home which has been under construction for more than 2 years; or
- Residential land with a home that has been uninhabitable for more than 2 years.
Existing homes must be occupied for at least 6 months in the year by either the owner, the owner’s permitted occupant, or a tenant.
From 2026, the VRLT will also apply to land in metropolitan Melbourne that is zoned as residential land, is capable of residential development, but has been undeveloped for a continuous period of at least 5 years. For more information, see the SRO website.
The amount of the tax is calculated as a percentage of the Capital Improved Value of the land. The percentage varies based on whether the property has been “vacant” for 1 year (1%), 2 years (2%) or 3 or more years (3%).
Example: Mordi
Mordi owns an apartment in Mordialloc. The house was purchased in 2015. Since 2021, Mordi has split his time between Australia, Japan and the U.S. During this time, he only occupies the apartment for up to 2 months per year and nobody else lives there. The apartment has thus been vacant for 5 years. Mordi’s VRLT liability is as follows:
2022: 1%
2023: 2%
2024: 3%
2025: 3%
2026: 3%
The Victorian Government has recently changed the law so that the reporting deadline is 15 February each year.
Absentee owner surcharge
If your property (such as your principal place of residence) is exempt from land tax, it will also be exempt from the absentee owner surcharge. The absentee owner surcharge is an additional tax on top of the standard land tax payable by a non-resident landowner. If:
- you own a property in Victoria;
- live outside Australia; and
- are not an Australian citizen or permanent resident;
you will be considered an absentee owner and must pay the absentee owner surcharge.
The tax is calculated as a percentage of the value of the property (currently 4%).
If there are multiple owners, and one or more is an absentee owner, the surcharge will only be applied to the individual land tax assessment of the absentee owner. If all owners are absentee owners, the surcharge applies to the whole assessment against the property.
Example: Sunny and Sandy
Sunny is an Australian citizen. Sunny met Sandy overseas, and in 2024 the two purchased a small house in Sandringham as tenants in common in equal shares. Sandy is not an Australian citizen or permanent resident. Sunny and Sandy moved to London in 2025 and do not intend to return to Australia. Sunny is not an absentee owner. Sandy is an absentee owner of her share of the property, and will still be on 31 December 2025. The house is currently valued at $1,000,000.00. The estimated land tax for the Sandringham property in 2026 will be $44,650.00, made up of about $4,650.00 in land tax, and a 4% absentee surcharge of $40,000.00. Sunny and Sandy will pay this amount, but may receive a refund to reflect that Sandy, the absentee owner, only owns half of the property.
Consequences – penalty tax and interest
If the VRLT or absentee surcharge applies to your property, and you fail to notify the SRO, penalty tax could be charged. The penalty could be up to 75% of the additional tax which you should have paid, but did not pay. Accordingly, it is crucial to ensure you notify the SRO correctly each year.
Further, interest will be charged on any unpaid tax and unpaid land tax. The present interest rate is 11.78%.
“The good” – exemptions to the taxes, and what you should do
Vacant residential land tax
Alpine resort exemption
Owners of residential land in the alpine resorts (Mt Baw Baw, Mt Buller, Mt Hotham, Mr Stirling, Falls Creek, and Lake Mountain) are in luck – following a change in the law, VRLT is no longer payable on these properties. If you own a property in the alpine resorts and paid VRLT in 2025, you will be entitled to a refund.
Land cannot be used or developed for residential purposes
If you own vacant residential land, but it cannot be used for residential purposes because of a planning scheme, restrictive covenant, or some other prohibition, the Commissioner may be satisfied that you should not pay VRLT.
Holiday home exemption
If your principal place of residence (PPR) is in Australia, and you own a holiday home (being sufficiently distant from your own home), you may be exempt from VRLT. Provided the holiday home is used for at least 4 weeks per year, VRLT will not be charged on that land.
Work accommodation exemption
Residential land anywhere in Victoria which is used by the owner for the purpose of attending the owner’s workplace may be exempt from VRLT. If you regularly use your residential land while working away from home (for at least 140 days per year) and have a PPR in Australia, VRLT may not be charged.
Land adjoining your home
If you own your PPR and also own land that is vacant, is zoned as residential, adjoins your PPR, and enhances your PPR, VRLT will not be charged on that land.
“Under renovation” exemption
From 2026, there is a new exemption available for residential land which has been vacant for a substantial part of the year due to renovation works.
If your residential land has been vacant in 2025, you must notify the SRO to prevent penalty tax and/or interest. If you believe an exemption applies, you must first notify the SRO that the land has been vacant, and then claim an exemption. For more information, please see SRO guidance on notifications.
Absentee owner surcharge
If you are an absentee owner, but the land is being developed under a build-to-rent regime, you may be exempt from the absentee owner surcharge.
If you, or a person who co-owns a property with you, will be an absentee owner on 31 December 2025, you or they will need to notify the SRO by 15 January 2026. Notification can be made through the SRO Absentee Owner Notification Portal. If you believe you are exempt from the absentee surcharge, you must submit a written application accompanied by the required supporting documents, by email to taxadvisory@sro.vic.gov.au or by post. Further information on the required information can be found here.
Conclusion
We have highlighted the important features of VRLT and the absentee owner surcharge as they apply to natural persons who own residential land in Victoria. For more information on the above, please see the SRO’s guidance.
As always, we are here to support you, our clients, and are happy to discuss any specific queries you may have, particular if they concern properties owned by corporations or trusts (which have not been discussed here). Please do not hesitate to contact our office if you seek advice concerning your particular circumstances.
