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Land tax and vacant residential land tax – debunking ‘pub tax’ myths

Earlier this year, we published an article outlining changes to land tax and vacant residential land tax, particularly affecting property holdings in Victoria. The article sparked considerable interest, and as we talked to more and more clients about their options, we discovered there were some widespread misconceptions being commonly shared in social settings. We sometimes call this “pub tax”. 


The truth about land tax exemptions for a principal place of residence

To ensure you’re approaching your tax planning the right way, let’s separate the truth from the myths to ensure our understanding aligns with actual tax legislation.


Myth 1:

“If I own one property and I rent this out, while I live in a different property which I rent from someone else, I won’t pay land tax due to an exemption for owning a single property.”

Why this is wrong: 

The exemption for land tax on a principal place of residence applies solely to the property where the owner actually resides. Owning a single rental property does not qualify for this exemption if it is not your principal residence.


Myth 2: 

If I own two properties, one being a principal place of residence and the other being a rental property, I get to choose which of these two properties gets the land tax exemption. When I make the choice, I will choose the property that is worth more!

Why this is wrong: 

The land tax exemption can only apply to your actual principal place of residence. There is no option to designate a rental property as your principal place of residence for tax purposes if you don’t actually reside there.


Myth 3: 

“If I own a principal residence and a holiday home, which I don’t rent out, no land tax is due on the holiday home as long as I stay in it for more than four weeks a year.”

Why this is wrong: 

Only principal places of residence attract such an exemption, and all secondary homes, such as holiday homes, do attract land tax. However, living in a holiday home for at least four weeks a year does mean that that holiday home will not attract what is called Vacant Residential Land Tax (VRLT), as long as the owner also has a principal place of residence in Australia.


What is VRLT?

VRLT is an additional tax on top of land tax that can apply where residential land is considered to be “vacant”.

The Victorian State Revenue Office advises that land is considered vacant if, for more than 6 months in the preceding calendar year, it has not been lived in by:

  • the owner, or the owner’s permitted occupant, as their principal place of residence (PPR), or
  • a person under a lease or short-term letting arrangement made in good faith.

In this, the occupation does not need to be by the same occupant or for a single continuous period, and a beneficiary of a discretionary trust can be a permitted occupant.

It’s worth noting that from 1 January 2025, a relative of the owner can also satisfy the 4-week use and occupation requirement by staying in the holiday home in question.

Myth 4: 

If a property is owned by a discretionary trust and used by beneficiaries as a holiday home, there is no exemption from VRLT.

Why this is wrong: 

Due to a legislative change that received Royal Assent on 4 June 2024, where a holiday home is owned by a discretionary trust and is occupied by a specified beneficiary (or the relative of a specified beneficiary) for at least four weeks in a year, the holiday home can be exempt from VRLT. Broadly, a “specified beneficiary” is a person who is listed by name as eligible beneficiary of a discretionary trust.


‘Pub tax’ advice could cost you more than just the next round

Relying on casual discussions for your tax planning and compliance advice can lead to serious misunderstandings about tax obligations, and might lead to poor financial outcomes. 

For reliable, expert advice on land tax and VRLT adjustments in Victoria, please consider consulting with LDB’s experienced tax professionals. We offer tailored tax accounting services and business tax advice to help navigate complex tax scenarios, ensuring you benefit from all applicable exemptions and avoid common pitfalls.

We’re here to make tax planning and compliance as straightforward as possible. Our tax consultants for small businesses and experienced CPA tax advisors are dedicated to simplifying tax issues for businesses and individuals, and pursuing the best financial outcomes for all our clients. 

If you need assistance or have any questions about your specific situation, don’t hesitate to contact us on (03) 9875 2900 and ask to speak with the tax team. 


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