Published by Hayton Kosky Lawyers | Property & Taxation | May 2026
You did not leave the property vacant on purpose. Perhaps you inherited it and the estate took longer to administer than expected. Perhaps you moved interstate for work and could not find a suitable tenant. Perhaps the property needed repairs and the tradesperson queue stretched into months. Perhaps you simply did not know the rules had changed.
And then the letter arrived from the State Revenue Office.
The Vacant Residential Land Tax — known in the industry as VRLT — is one of the most misunderstood and, for many owners, most unexpected taxes operating in Victoria today. Since its expansion in 2023 and further broadening from 1 January 2026, it has moved well beyond its original target of investment speculators sitting on empty inner-city apartments. It now reaches into the circumstances of ordinary property owners across metropolitan Melbourne who may have no idea they are in its sights.
This post is for those owners — and for the practitioners advising them.
What Is VRLT and Why Does It Exist?
The Vacant Residential Land Tax is imposed under Division 6 of Part 4A of the Land Tax Act 2005 (Vic). It was introduced by the Victorian Government as a housing supply measure, premised on the idea that residential land held vacant in a constrained housing market imposes a cost on the community. The policy logic is straightforward: if you own residential land in metropolitan Melbourne and leave it unused, you will pay.
The rate is not trivial. VRLT is charged at 1% of the Capital Improved Value (CIV) of the land for the first year of liability, rising to 2% in the second year and 3% from the third year onwards. On a property with a CIV of $1.5 million — entirely unremarkable in inner Melbourne — that is $15,000 in year one, $30,000 in year two, and $45,000 per year thereafter, compounding indefinitely until the vacancy ends.
Fail to notify the SRO of your vacancy, and a penalty of 25% of the unpaid tax is added. If the SRO determines you deliberately concealed the vacancy, the penalty rises to 75%. These are not administrative inconveniences. They are substantial financial consequences that can arrive without warning.
The Trap: How the SRO Knows Before You Do
Many owners assume that if they have not told the SRO about a vacancy, the SRO cannot know about it. This assumption is wrong, and dangerously so.
The SRO operates what can fairly be described as a data-driven enforcement model. It cross-references property ownership records against a range of external datasets — utility connection records (electricity, gas, water), Residential Tenancy Bond Authority (RTBA) data, ATO income records, VicRoads registration data, and council rate records. When a property shows no utility consumption, no registered tenancy bond, no rental income declared, and no occupant registered at the address with government agencies, the SRO’s algorithm flags it as potentially vacant.
Critically, the SRO does not wait for owners to come forward. It issues assessments proactively, based on its own data analysis. The first many owners know of their VRLT liability is when an assessment notice arrives in the mail — often for a prior calendar year, meaning the tax has already accrued.
This is not a theoretical risk. The SRO has been issuing VRLT assessments in significant volume since the 2023 expansion, and the investigation correspondence we have seen in practice confirms that the SRO’s data matching is sophisticated and targeted.
Who Is Actually Caught?
The legislation targets residential land in metropolitan Melbourne that is vacant for more than 6 months in a calendar year. But the definition of what counts as “residential land” — and what counts as “vacant” — is more complex than it first appears.
Residential land means land that is capable of being used solely or primarily for residential purposes. The starting point is the planning zone, but the AVPCC (Australian Valuation Property Classification Code) assigned to the property on the council rates notice and SRO land tax assessment is the SRO’s primary classification tool. Properties coded in the 100–151 range (residential dwellings, units, flats, townhouses, vacant residential land) are the core target. Properties coded in other ranges — including some commercial and mixed-use codes — may or may not be caught, depending on the specific code and the physical characteristics of the land.
Vacancy is assessed against the calendar year (1 January to 31 December). A property is vacant if it is not used and occupied as a residence for an aggregate of more than 6 months in that year. Occupation by the owner, a permitted occupant, or a tenant under a registered lease can satisfy the use requirement — but the SRO will look for evidence, not assertions.
The categories of owner most commonly caught include:
| Owner Type | Common Scenario |
|---|---|
| Estate beneficiaries | Property held in a deceased estate pending administration or sale |
| Renovators | Property undergoing substantial renovation with no occupant |
| Interstate or overseas owners | Owner relocated, property not tenanted or only briefly tenanted |
| Inherited holiday homes | Property used only seasonally, not meeting the 6-month threshold |
| Developers (undeveloped land) | From 1 January 2026, undeveloped residential land in metro Melbourne vacant for 5+ years |
| Owners between tenants | Extended vacancy between tenancies exceeding 6 months in aggregate |
The AVPCC Code: The Number That Determines Your Fate
One of the least-understood aspects of VRLT is the role of the AVPCC code. This four-digit classification code, assigned by the Valuer-General Victoria and appearing on your council rates notice and SRO land tax assessment, is the mechanism by which the SRO determines whether your property is “residential land” for VRLT purposes.
The SRO does not conduct an independent assessment of each property’s physical characteristics. It relies on the AVPCC code as a proxy. If your property is coded as residential, it is presumed to be residential land for VRLT purposes. If it is coded as commercial, industrial, or primary production, it is generally outside the VRLT net — even if a residence sits on the land.
This creates both a risk and an opportunity. The risk is that owners of properties with residential AVPCC codes may be caught even where the property’s actual use or characteristics might suggest otherwise. The opportunity is that an incorrect AVPCC code — one that has been wrongly assigned or not updated to reflect a change in use — can be challenged through the Valuer-General’s objection process, with downstream consequences for VRLT liability.
If you have received a VRLT assessment and you are uncertain whether your AVPCC code is correct, this is one of the first things to check.
The Exemptions: A Lifeline, But Only If You Know About Them
Division 9 of Part 4A of the Land Tax Act 2005 (Vic) provides a range of exemptions from VRLT. These are not automatic — they must be claimed, and in most cases they must be supported by evidence. The principal exemptions include:
Holiday home exemption. An owner who uses the property as their holiday home for at least 4 weeks in the calendar year may be exempt, provided the property is not rented out during the year. This exemption is narrower than many owners assume — the 4-week requirement is a minimum, and the SRO may require evidence of actual use (utility records, travel records, statutory declarations).
Change of ownership exemption. A property that changed ownership during the calendar year is exempt for that year. This provides a transitional buffer for new owners, but it applies only in the year of acquisition.
New residential premises exemption. A newly constructed residence is exempt for the calendar year in which construction is completed and for the following year. This recognises that newly built properties may take time to be occupied or sold.
Deceased estate exemption. A property forming part of a deceased estate is exempt for the calendar year of death and the two following calendar years. This is a critical exemption for estate beneficiaries, but it has a hard time limit — after two years, the exemption expires and VRLT begins to accrue.
Uninhabitability defence. Where a property is genuinely uninhabitable — not merely in need of cosmetic repair, but structurally or functionally incapable of being occupied as a residence — the owner may have a defence to vacancy. The threshold is high. The VCAT decision in Zheng v Commissioner of State Revenue [2024] VCAT 1173 confirmed that the uninhabitability defence requires evidence of a condition that renders the property objectively incapable of residential occupation, not merely inconvenient or uncomfortable to occupy.
The Notification Obligation: The Trap Within the Trap
Even where an exemption applies, owners must be alert to the notification obligation. Under the Land Tax Act 2005 (Vic), owners of residential land that was vacant for more than 6 months in the preceding calendar year are required to notify the SRO by 15 February of the following year.
This obligation applies even where the owner believes an exemption applies. The notification is the mechanism by which the owner claims the exemption — it is not enough to simply not notify and assume the SRO will not pursue the matter.
Failure to notify by 15 February attracts a 25% penalty on the unpaid VRLT. If the SRO determines the failure was deliberate, the penalty rises to 75%. Given that many owners are unaware of the notification obligation entirely, the penalty provisions are a significant source of additional liability.
The notification is made through the SRO’s online portal. It requires the owner to identify the property, confirm the period of vacancy, and either claim an exemption or acknowledge liability.
What To Do If You Have Received an Assessment
If you have received a VRLT assessment and you believe it is incorrect — whether because the property was not vacant, an exemption applies, the AVPCC code is wrong, or the SRO has made an error in its data matching — you have the right to object.
An objection must be lodged with the SRO within 60 days of the date of the assessment notice under section 96 of the Taxation Administration Act 1997 (Vic). This is a strict deadline. The SRO has limited discretion to extend it, and VCAT has shown little appetite for excusing late objections where the owner was simply unaware of the deadline.
The objection must be in writing, must identify the grounds of objection, and must be supported by evidence. The grounds most commonly available include:
- The property was not vacant for more than 6 months in the relevant year (supported by tenancy agreements, utility records, statutory declarations, and RTBA bond records)
- An exemption applies (supported by evidence of holiday home use, estate administration, construction completion, or uninhabitability)
- The AVPCC code is incorrect (supported by a valuation report or Valuer-General objection)
- The SRO’s data matching has produced a false positive (supported by evidence of actual occupation)
If the SRO disallows the objection, the owner has a further 60 days to apply to VCAT for a review or appeal to the Supreme Court of Victoria. The recent VCAT decision in KES v Commissioner of State Revenue [2026] VCAT 75 confirms that VCAT will examine the factual basis of VRLT assessments carefully, and that owners with well-documented grounds of objection have a genuine prospect of success.
The New Frontier: Undeveloped Land From 1 January 2026
From 1 January 2026, the VRLT net has been extended to capture undeveloped residential land in metropolitan Melbourne that has remained undeveloped for 5 or more continuous years. This is a significant expansion. It targets landowners who have held vacant blocks — without constructing any residence — for an extended period.
The rate for undeveloped land is 1% of CIV per year. There is no escalation to 2% or 3% (at least not under the current provisions), but the liability begins from the first year in which the 5-year threshold is met and continues indefinitely.
Owners of vacant blocks in metropolitan Melbourne who have held them for 5 or more years should seek advice urgently. The 2026 assessment year is the first in which this expanded liability will crystallise, and many owners will not be aware that their land has crossed the threshold.
A Word on the Human Cost
Behind every VRLT assessment is a real person in a real situation. We have seen assessments issued against:
- An elderly widow whose husband died mid-renovation, leaving the property in a state of partial completion while she navigated probate, grief, and a building dispute simultaneously
- A family whose interstate relocation was extended by a serious illness, leaving their Melbourne property vacant while they managed a medical crisis
- A beneficiary of a deceased estate who had no idea the property existed until the estate was administered — and then received a VRLT assessment for the years of administration
The tax does not pause for human circumstances. The SRO’s algorithm does not distinguish between the speculator sitting on an empty investment property and the grieving widow trying to sort out her husband’s affairs. The legislation provides some relief through the exemptions, but those exemptions must be claimed, and they must be claimed on time.
If you are in one of these situations, the most important thing you can do is act promptly. The 60-day objection window is unforgiving. Evidence that might have been easily gathered at the time becomes harder to reconstruct months or years later. And the penalties for inaction compound the underlying liability.
How Hayton Kosky Can Help
Hayton Kosky Lawyers advises property owners and practitioners across Victoria on VRLT liability, exemptions, notification obligations, and objection proceedings. We have experience with the SRO’s data-driven enforcement model and the evidence required to support a successful objection or VCAT application.
If you have received a VRLT assessment, or if you are concerned that a property you own or advise on may be at risk, we encourage you to use our VRLT Decision Tree tool as a first step to understanding where you stand — and then to contact us for advice tailored to your specific circumstances.
Hayton Kosky Lawyers Level 1, 300 Centre Road, Bentleigh VIC 3204 haytonkosky.com.au
This article is general information only and does not constitute legal or tax advice. VRLT is highly fact-specific and the application of exemptions, notification obligations, and objection rights depends on the particular circumstances of each property and owner. You should obtain advice from a qualified property lawyer, accountant, or tax adviser before taking any action. Cases cited: Zheng v Commissioner of State Revenue [2024] VCAT 1173; KES v Commissioner of State Revenue [2026] VCAT 75. Legislative references are to the Land Tax Act 2005 (Vic) as amended to May 2026 and the Taxation Administration Act 1997 (Vic).