Vacant Residential Land Tax (Victoria): what the state-wide expansion means for retirees with holiday homes

If you are an Australian retiree who owns a Victorian holiday home or a second residence outside the place you actually live in, a state tax that used to be confined to inner Melbourne may now reach you. The Vacant Residential Land Tax — VRLT, the annual tax administered by the State Revenue Office of Victoria (the SRO) on residential land that sits empty — applied only to sixteen inner and middle Melbourne council areas before 2025. From the 2025 calendar year it applies to all residential land in Victoria. In plain terms, if your property was vacant during 2025 you may receive a VRLT assessment in 2026 — and a weekender at Sorrento, a cottage at Daylesford, or a unit on the Bellarine that has never attracted this tax before is now potentially within the net. This article explains how the tax works, the exemptions that matter most to retirees, an important carve-out that surprises people, and the one date you need in your diary.

VRLT is charged on the property's capital improved value (CIV) — the council valuation of the land plus every building and improvement on it — and it sits on top of ordinary Victorian land tax, not instead of it. The rate now climbs the longer a property stays empty. For land in its first year of liability the rate is 1% of CIV; in a second consecutive liable year it is 2%; and in a third or later consecutive year it is 3%. This escalating structure is itself new — before 2025 VRLT was a flat 1% of CIV for everyone, so the 2%/3% steps are part of the same package that widened the tax across the state. To put numbers on it, a holiday house with a CIV of $1.5 million would face $15,000 in its first liable year, $30,000 in a second consecutive year, and $45,000 in a third (2025 rates onwards). A full calendar year of qualifying use resets the clock, so the escalation rewards either genuine use or sale.

What actually makes a property "vacant"?

What makes a property "vacant" is precise. The SRO treats a property as vacant if it was not lived in for at least six months of the previous calendar year by the owner or a permitted occupant, and those six months do not have to be continuous or by the same person. Crucially, it is not enough for the home to be available — listed for rent, listed for sale, or advertised for short stays. It must actually be used. A house that sits idle for most of the year while you wait for the right buyer is still vacant for VRLT purposes. The assessment runs on the calendar year, not the financial year, which trips up people used to thinking in 1 July–30 June terms.

How does the holiday home exemption work?

For most retiree-owned holiday homes, the holiday home exemption is the relief that matters, and its threshold is far gentler than the six-month general test. A holiday home is exempt from VRLT if you or your relatives use it for at least four weeks in the calendar year. Those four weeks need not be consecutive, and — importantly — you can add up the use of different people: two weeks by you and two weeks by your children together meet the test. "Relatives" is broader than many assume; the SRO list covers your spouse or domestic partner, your children and their partners, your siblings and their partners and children, and your parents, grandparents and grandchildren. To claim it you must have your own home (your principal place of residence) somewhere in Australia, whether you own or rent it, and the SRO must be satisfied the property is a genuine holiday home — it weighs the location, how and when you use it, and the distance between your real home and the holiday house. You can only claim one holiday home exemption per year. One practical point that saves paperwork: once the SRO grants an exemption you do not have to re-apply every year — you only need to notify them again if your circumstances change, for example if you stop qualifying.

Are alpine resort properties exempt from VRLT?

There is one carve-out worth flagging because it runs against intuition: VRLT does not apply to land in Victoria's alpine resorts at all. The SRO confirms the tax does not apply to taxable land in Mt Baw Baw, Mt Buller, Mt Hotham, Mt Stirling, Falls Creek and Lake Mountain, nor to land at Dinner Plain. So a retiree who owns a ski apartment at Falls Creek or Mt Buller — exactly the sort of rarely-used second property you might expect the state-wide expansion to catch — is outside the regime regardless of how little the place is used. Coastal and regional holiday homes are caught; alpine-resort apartments are not. It is a distinction worth knowing before you assume the worst about an alpine bolthole.

What other exemptions apply?

Other exemptions fill in the edges. Your principal place of residence is already exempt from both land tax and VRLT, so a retiree who owns only the home they live in never has to think about this tax. When a property genuinely changes ownership during a year it is exempt from VRLT the following year — but only when ownership actually changes; being listed for sale or awaiting settlement is not enough. New residential land — a home newly built, or a building converted to residences — is exempt for up to two years while it remains unused and unsold, and from 2025 that window stretches to three years where the owner is making genuine and reasonable efforts to sell at or below the price expected when construction began; after three years the 1% rate applies until sale. A residence that was under construction, renovation, or otherwise uninhabitable in the previous year can also qualify for relief while the work genuinely prevents occupation, though cosmetic touch-ups that don't stop you living there will not.

Can renting the property out avoid VRLT?

Renting the property out is the other clean way to step outside VRLT. Because the test is genuine residential use for six months, a real tenancy of six months or more in the calendar year converts the property from "vacant" to "occupied" and removes the liability for that year. The trade-off is real: the home is no longer free for family holidays, and the rent becomes assessable income for tax (with deductible expenses available) and may affect Centrelink means-testing through deeming and the assets test. Short-term holiday letting in the Airbnb mould generally does not help, because scattered short stays don't add up to the genuine six-month occupation the test requires.

Worked planning examples

These two cases show how the rules land in practice. They are illustrative only and not personal advice.

Helen and Greg, both 69, retired, live in Hawthorn and own a holiday house at Sorrento (CIV $2.2 million). They spend roughly five to six weeks a year at Sorrento — January and February over summer, Easter, and the odd long weekend — and the house is otherwise empty. Sorrento is a coastal town, well inside the state-wide VRLT net, and the house is plainly vacant on the six-month test. But their actual use comfortably clears the four-week holiday home threshold, so on these facts the holiday home exemption applies and no VRLT is payable (2025 rules onwards). Without it, the first-year liability at 1% of a $2.2 million CIV would be $22,000 — so the exemption is doing real work. The rational course is generally to claim the exemption, keep simple evidence of family use (calendar entries, photos with dates, utility patterns) in case the SRO asks, and remember that once it's granted they won't need to re-apply each year unless their use pattern changes. Ordinary land tax still applies to the property; only VRLT is removed.

Robert, 73, widowed, owns a holiday unit at Lorne on the Surf Coast (CIV $750,000) that he and his late wife used for years. Since her death he has not been able to bring himself to use it, and it has now sat empty through two full calendar years. On these facts Robert is exposed. The unit was vacant for well over six months in each year and Lorne sits squarely within the expanded regime, so his first liable year produces VRLT of 1% of $750,000 — $7,500 — and if the vacancy continues into a second consecutive year the rate steps to 2%, or $15,000 (2025 rates onwards), on top of ordinary land tax. The holiday home exemption needs four weeks of genuine family use, which Robert isn't reaching. On these facts the rational options are reasonably stark: actually use the unit for four weeks a year (perhaps with children and grandchildren) to claim the exemption, sign a genuine six-month-plus tenancy to convert it to occupied — accepting the rental income and its tax and Centrelink consequences — or sell, which triggers capital gains tax but ends the escalating VRLT and the other holding costs. It is, in truth, a prompt to decide whether to keep a property he no longer uses. (Had Robert's place instead been the alpine apartment at Mt Buller they once skied from, the answer would differ: alpine-resort land is outside VRLT entirely.)

For Victorian retirees with holiday homes or second residences, VRLT is now a tax worth an annual look rather than an inner-Melbourne curiosity. The sensible rhythm is to list every Victorian residential property you hold outside your own home, work out whether each was used enough in the prior calendar year to be "occupied" or to claim the holiday home exemption, and — above all — diary the 15 February notification deadline. You must tell the SRO about vacant residential land you own by 15 February each year for the preceding calendar year, and you must notify even if you believe the land is exempt; missing the date can lead to penalty tax. For the genuinely used family holiday home the exemption pathway is straightforward; for the rarely-touched second property the question of whether to use it, rent it, or sell it is now a good deal sharper.

Sources

• State Revenue Office Victoria — Understanding vacant residential land tax
• State Revenue Office Victoria — Vacant residential land tax current rates
• State Revenue Office Victoria — Exemptions vacant residential land tax
• State Revenue Office Victoria — Make vacant residential land tax notification