Are Holiday Homes Exempt from Land Tax in Victoria

If you own a holiday home in Victoria, you might be wondering whether you need to pay land tax on your property. Land tax is an annual tax based on the total taxable value of all the land you own in Victoria, excluding exempt land such as your primary residence. However, the rules around holiday homes and land tax exemptions can be complex and have recently undergone some changes. In this blog post, we'll provide a comprehensive guide to help you understand if your holiday home is exempt from land tax in Victoria.

Understanding the Vacant Residential Land Tax (VRLT)

First, it's important to understand the Vacant Residential Land Tax (VRLT), which was introduced in 2017 to address housing affordability issues in inner and middle suburban areas of Melbourne. From 1 January 2025, the VRLT will apply to all vacant residential land throughout Victoria.The VRLT is an annual tax based on 1% of the Capital Improved Value (CIV) of vacant residential land in the first year, in addition to any general land tax. For example, a vacant home valued at $1 million will incur a $10,000 VRLT in the first year, on top of any land tax.

The Holiday Home Exemption

Residential land is subject to the VRLT if it has been vacant for more than six months in a calendar year. However, an exemption applies if the owner or a vested beneficiary used and occupied the land as a holiday home for at least four weeks (whether continuous or aggregate) in the preceding year. To qualify for this exemption, the owner must also have used and occupied another property in Australia as their principal place of residence (PPR). From 1 January 2025, the exemption will be extended to allow use by a relative of the owner or a vested beneficiary. It's important to note that the Commissioner of State Revenue must be satisfied that the property was genuinely used as a holiday home, considering factors such as its location, the distance between the owner's PPR and the holiday home, and the frequency and nature of its use.

Limitations of the Holiday Home Exemption

While there is an exemption for holiday homes, it largely applies only when the owner is an individual who used and occupied the property as a holiday home for at least four weeks in the previous year. Properties owned by companies, associations, or organisations are generally not eligible for this exemption. If your holiday home is owned by a trust or company, you may need to consider alternative arrangements to avoid the VRLT. One option is to implement an arm's length lease and ensure the tenant satisfies the "6+ Month Test" by using and occupying the property for at least six months in the preceding year.

Recent Changes and Misconceptions

In October 2023, the Victorian Government announced changes to the VRLT, causing some confusion about the holiday home exemption. While the media release claimed that holiday homes would be exempt, experts warned that many holiday homes across Victoria would still be hit by the new vacancy tax. Shadow Treasurer Brad Rowswell stated, "This is not an exemption for all holiday homes, it is only an exemption for holiday homes owned by individuals, not for holiday homes owned in family trusts or companies". The Victorian Government has said it would extend the holiday home exemption to properties owned by trusts and companies, at least for those acquired before the announced changes in October 2023. However, until such a change in the law occurs, it's prudent to seek advice on the best course of action.

Documenting Holiday Home Usage

To claim the holiday home exemption, it's crucial to document the use and occupancy of your property, including use by relatives, and ensure it is used for at least four weeks each year. A simple logbook showing dates and persons using the property may suffice, but it must be compiled annually and retained to demonstrate the holiday home's use if required. Additional evidence, such as bills showing water usage or receipts from nearby shopping purchases, can also help support your claim for the exemption.

Conclusion

Navigating the rules around holiday homes and land tax exemptions in Victoria can be complex, especially with recent changes to the VRLT. While there is an exemption for holiday homes used by individual owners or their relatives for at least four weeks in the preceding year, properties owned by trusts or companies may not be eligible. If you're unsure about your holiday home's land tax obligations or need assistance with documenting its usage, it's essential to seek professional advice. For more information and a free Section 32 contract review, contact Pearson Chambers Conveyancing on 03 9969 2405 or email contact@pearsonchambers.com.au. Our experienced team can help guide you through the complexities of land tax exemptions and ensure your holiday home is compliant with the latest regulations.