Vacant residential land tax, absentee owner surcharge, federal annual vacancy fee, are you confused yet? You are not alone. All these three federal and state (Victoria) taxes are related to foreign owners and/or vacant residential properties but with different purposes and rules.
A. Vacant residential land tax - Victoria
The vacant residential land tax is a state tax that applies from 1 January 2018 to improve the lack of housing supply in inner and middle Melbourne. Despite the name, it is not a land tax. It applies to residential properties that are located in one of the 16 specific council areas that were vacant for more than 6 months in the previous calendar year. This tax is set at 1% of the capital improved value (CIV) of the taxable land (as shown on a rates notice).
A property is considered not vacant if for more than 6 months (continuously or not) it was used either as the owner’s principle place of residence (PPR) or under a genuine lease agreement (long term or short term). Note that it is not enough to be merely available for lease or used casually by family and friends.
There are, however, a few exemptions such as when:
The ownership changed during that year
The property is used by the owner as a holiday house and is used for more than 4 weeks in a year
The property became residential during that year
The property is used by the owner as a work place for at least 140 days during that year
If your property is located at one of the 16 council areas and was vacant for more than 6 months in the previous year, you must notify the State Revenue Office (SRO) by 15 January the next year using the SRO online portal.
B. Absentee owner surcharge
This land tax surcharge applies to taxable Victorian land that is owned by an absentee owner. You are an absentee individual if you:
Are not an Australian citizen or permanent resident, and
Do not ordinarily reside in Australia, and
Were absent from Australia on 31 December or did not live in Australia for more than 6 months during the prior year
An absentee owner can also be a corporation or a trust that is controlled by an absentee individual.
The surcharge is 1.5% from 1 January 2017 on top of the land tax that is already being paid. The surcharge does not apply if the value of the land is below the land tax threshold and no land tax is payable.
Like the vacant residential land tax, the SRO must be notified by 15 January of the next year through their online portal.
C. Federal annual vacancy fee
The federal annual vacancy fee was introduced in December 2017 as part of the government’s housing affordability plan and is intended to encourage foreign owners to make their properties available for rent.
According to the legislation, foreign owners are required to pay an annual fee if their residential property was not occupied or rented out (or genuinely available on the rental market) for more than 183 in a vacancy year. Note that a vacancy year is not a calendar year or financial year, rather, it is a period of 12 months generally starting from the settlement date.
An annual vacancy fee return must also be lodged by all foreign owners who have made a foreign investment application for residential property after 9 May 2017, even if the property has been occupied or rented out and no fee is payable, except when:
The property is sold during a year, or
You are no longer a foreign person
The annual vacancy fee return must be lodged within 30 days after the end of the vacancy year. To assist with the lodgement, Australian Taxation Office (ATO) will send a reminder email prior to the end of the vacancy year than contains important information. The amount of fee payable will be notified by the ATO after the lodgement of the return but is generally the same amount as the foreign investment application fee.
Prepared and edited by: Fei Gao
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