New short-stay tax set to kill the market, they say

“DEAR Customer, you must notify us by 15 January 2025 if you own a home that has been unoccupied for more than 6 months.”

This was the opening paragraph of a communique to holiday homeowners from the Commissioner of the Victorian State Revenue Office (SRO), Paul Broderick, in the past week.

It was no Christmas card.

The letter advised the owners of hundreds of holiday homes across Bass Coast and South Gippsland, and not only those who have their properties on the short-stay rental market, that they have been slugged with a hefty new tax called the Vacant Residential Land Tax (VRLT).

Dozens of them, according to an Inverloch real estate agent, immediately went out and put their properties on the market.

It’s not a surprise.

Having your property on the market is actually one of the exemptions to the new tax. But be careful, big penalties apply to those prepared to try and rort the system.

The annual VRLT tax is set at 1% of the CIV of taxable land. For example, if a vacant home has a CIV of $500,000, the VRLT will be $5000.

Typically, however, due to the speculative nature of the market for homes along the coast, especially during the COVID boom, even modest beach shacks can be valued at $1 million, attracting a tax of $10,000 in the first year.

The tax rises to 2% in the second year ($20,000), and 3% in the third year ($30,000).

The Sentinel-Times has had it confirmed by the SRO that the tax is capped at 3% in the years thereafter.

The new tax follows the introduction of a short stay levy of 7.5% by the SRO, also from January 1, 2025, and a ‘Short Stay Rental Accommodation Registration’ fee payable annually to the Bass Coast Shire Council, of $312, up from $300 last year.

There’s also Land Tax and shire rates to pay.

A local short-stay property owner contacted by the Sentinel-Times believes it will kill the sector.

“Who could afford to operate an Airbnb? No one, which I guess is their aim,” he said.

But it's not just those involved in the short-stay market who'll be impacted.

The new tax might have unintended consequences, for example, for people who live in Wonthaggi and own a beach shack at Cape Paterson that they never rent out.

People living in regional areas who own a house at the beach and a unit in Melbourne, will also get hit.

The SRO Commissioner isn't keen on providing exemption to those who own a "holiday house" close to home and you can only claim exemption for one extra residence no matter where it is located.

Introduced by the State Government from January 1, 2018 to “help address the lack of housing supply in Victoria”, the Vacant Residential Land Tax initially applied only to vacant residential property in inner and middle Melbourne.

But from January 1, 2025, VRLT will apply to residential property across all of Victoria if the site is vacant for more than six months in the preceding calendar year.

Alpine rental property is exempt.

Even the name ‘Vacant Residential Land Tax’ is a misnomer.

The VRLT does not apply to land without a home on it (sometimes called unimproved land), although unimproved residential land in 16 suburbs of metropolitan Melbourne, that has remained undeveloped for at least five years and is capable of residential development may attract VRLT from January 1, 2026 onwards.

More information about unimproved land and the VRLT is coming soon and while there’s no suggestion they’ll extend the tax to unimproved, residentially-zoned land in regional areas, there’s nothing to say they won’t.

However, residential land outside of inner and middle Melbourne (i.e. outer Melbourne and regional Victoria) with a residence that was under construction or renovation or that was uninhabitable as at December 31, 2023, may attract the VRLT from January 1, 2026.

Exemptions apply.

Properties that are exempt from the VRLT include:

• Your principal place of residence (PPR)
• An exemption applies to a property used and occupied by the owner or a vested beneficiary of the trust to which the land is subject as their holiday home for at least 4 weeks (whether continuous or aggregate) in a calendar year. To qualify for this exemption, the owner or vested beneficiary must also have a principal place of residence (home) in Australia in addition to their holiday home, but they do not have to own that home.
• Properties that change ownership during a calendar year are exempt from VRLT in the following year
• Properties for sale (up to 3 years exemption), where the owner has made genuine and reasonable efforts to sell the land during that 3-year period.

According to one local short-stay holiday home provider, who has been managing two properties on Phillip Island for 25 years, the 4-weeks of owner’s use is no panacea.

“I operate the two properties like a business. If I stay in one of them for four weeks to get out of the VRLT, I can’t claim a full year of expenses off my income tax. And I still have to pay $10,000 on the other house anyway, going up to $20,000 the following year and then $30,000.”

The sticking point for locals who provide short-stay accommodation is they may not qualify for the exemption by claiming they stay in the property they own nearby.

“The Commissioner of State Revenue must also be satisfied that the property was a genuine holiday home, having regard to its location and distance between the owner or vested beneficiary’s actual home and the holiday home, as well as the frequency and nature of its use,” according to details provided on the exemptions’ page of the SRO website.

And it only applies to one holiday home.

“An owner or a vested beneficiary will only be able to claim one holiday home exemption in a calendar year.”

There are other exemptions, see SRO website HERE

Penalty warning

Severe penalties apply.

Failing to advise the SRO that you own vacant residential property (including a holiday home or accommodation other than your principle place of residence) is a notification default under the Taxation Administration Act 1997. When this happens, you will be liable for penalty tax on the amount assessed in accordance with the SRO’s revenue ruling on penalty tax and interest. This may be penalty tax of:

* 5% if you voluntarily tell them about your vacant residential properties before they start an investigation

* 20% if you tell them about your vacant residential properties after they start an investigation

* Up to 90% if the SRO believes that you intentionally disregarded the law and hindered their investigation.

Dob in a cheat

The State Revenue Office is also encouraging people to dob in a cheat, providing a “tip-off” link on the SRO website:

“As part of our compliance strategy, we actively pursue cases where people are not complying with their tax or grant obligations. Penalties and legal action may result from our investigations.

“You can provide a tip-off about another person, company or entity to notify us of non-compliance.

“Information can be given anonymously and is protected by our privacy policy and secrecy provisions.”