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Victoria’s vacant residential land tax – what Airbnb hosts need to know

Whether you’re a happy Melbourne property owner or an investor to be, take a few minutes with us and become an expert in Victoria’s vacancy tax and most importantly, how to mitigate its impact on your investment portfolio.

The State Revenue Office (SRO) sums up the vacancy tax best:

“The vacant residential land tax (also referred to as the vacant residential property tax or vacancy tax) is a tax on residential properties in Melbourne’s inner and middle suburbs which are unoccupied for more than six months a year.

It is a Victorian tax, and is different to land tax, the absentee owner surcharge and the federal annual vacancy charge.”

In short, it’s a relatively steep tax as it will charge you 1% of your property’s capital improved value (CIV). As a result, property owners can no longer leave properties vacant whilst waiting for capital gains.

That said, the astute property owner can avoid the vacancy tax completely. There are significant rental opportunities activating the property in the short term rental market through sites such as Airbnb and Booking.com. Flexible, hassle-free income sure beats the vacancy tax!

“Actually in use” for 6+ months.

According to the SROproperties will be free from this tax once the occupation is either as a principal place of residence or subject to a bona fide lease/letting arrangement for more than 6 months in the preceding calendar year.

Some property agencies are misappropriating this information, saying that “the ATO deems short stay rental as not residentially occupied”, which is incorrect. The example on SRO is the best case to clarify: the tax applies only when it’s not actually letting for a cumulative total of 6 months. No matter how long the listing is on Airbnb, it must have been actually occupied for over 6 months to avoid the vacancy tax, which implies — having your property “successfully” occupied via short/long-term rentals can help!

With that said, not all empty Victorian property owners are affected. Local council areas include most of the popular inner Melbourne suburbs, you can review the full list on SRO’s website. As a positive general rule of thumb, properties in those councils are good short term rental candidates – significant profits worthy of exploration!

Tax on tax… on tax.

It’s worth stressing that the vacancy tax differs to land tax, the absentee owner surcharge and the federal annual vacancy fee. You also have to notify the government about your vacant properties by 15 January of the following year, or you could be charged from 5% to 90% for penalty tax.

Let’s run through an example:

If you have a home with current CIV of $500,000 empty for over 6 months, your vacant residential land tax will be $5,000. If you’re an international owner who do not ordinarily reside in Australia, other than the $5,000, you’ll also have to pay about $8,275 for general land tax (plus absentee owner surcharge) and the $5,600 for federal vacancy fee. The total amount has come to $18,875 for a year, and we haven’t added other costs yet! 

See how dreadful the bill could become? That’s why we highly recommend vacant home owners seek alternative ways to avoid expenses like this and instead, maximise their property’s returns.

A flexible and profitable solution.

Vacancy Tax - Airbnb SolutionsFor many of our clients, this vacancy tax will not apply. Leveraging multiple booking platforms for their short term rental, we minimise vacancy and rental returns. We’re BIG fans of making money rather than spending it.

Listing on Airbnb and other booking sites, we can ensure this 6-month threshold with full proper documentation to support and help the home owners completely avoid this tax.

If you would like to discuss the leasing options of your property, get in touch with us, we’d love to discuss your situation and clarify your options. At Roomerang we offer fully integrated property management solutions ranging from conveyancing, leasing, sales and marketing, management and project coordination. When it comes to property management across Melbourne, we’re your local experts.

 

*General Advice Warning: This blog post may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial advice prior to acting on this information.

**For the most current information about this tax, please visit the Victorian State Revenue Office (SRO) website. The government page should be your no.1 source of information and we also recommend you to read the comprehensive summary of the tax exemptions and implications that may cover most of your questions.

Related Tag: Airbnb Rental Management Melbourne

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