The Victorian government has announced the introduction of a Vacant Residential Property Tax. If you hold or are considering holding Victorian property the consequences can be huge. The tax will be levied at a rate of 1% of the capital improved value of vacant property (the value used for assessing council rates). Therefore if your property is worth $500,000, the tax payable each year would be $5,000.
This measure adds to other recent state government taxes introduced to cool the housing market. From 1/1/17 Victoria introduced a 7% stamp duty surcharge and a 1.5% absentee land tax for property owners who are not Australian citizens or permanent residents and do not ordinarily reside in Australia. New South Wales followed suit with a 4% stamp duty surcharge and a 0.75% absentee land tax for owners who are not ordinarily resident in Australia. Queensland also has a 3% stamp duty surcharge for purchasers who are not Australian citizens or permanent residents but they do not have an absentee land tax. The remaining states have not followed suit as they are not seeing the capital gains that the Eastern seaboard are experiencing.
Victoria's vacant residential property tax is the first of the new measures that potentially impacts Australian citizens as well as foreign property owners. Of course there are other costs of holding vacant property that affect everybody which also need to be taken into account when making investment decisions such as foregone rent (usually 3-5% of the property value), land tax, interest and other property holding costs such as council rates, water rates and insurance.
Details of the Vacant Residential Property Tax are yet to be finalised but it is set to be payable when a residential property is unoccupied for more than six months within a calendar year. Some exemptions are expected to be available including for holiday homes for those who have a separate principal place of residence, those who need a city unit for work purposes, deceased estates and homes owned by Victorians who are temporarily overseas.
The tax will only apply to vacant properties located in the inner and middle suburbs of Melbourne in the following Council areas:
- Glen Eira
- Hobsons Bay
- Moonee Valley
- Port Phillip
The tax is scheduled to apply from 1 January 2018.