Recent budget measures have upended Victoria’s long-settled land tax regime. Under the government’s “COVID Debt Repayment Plan”, the tax-free threshold was slashed from $300,000 down to $50,000 as of 1 January 2024. In practical terms, many thousands of additional homes and small properties are now being taxed for the first time. As KHQ Lawyers explains, “properties with a capital unimproved value as low as $50,000 are now subject to land tax payments from the 2024 fiscal year. Previously the rate was imposed from $300,000 only”. Crucially, the exemption for a principal place of residence still stands – these changes only hit investment and second properties. But for that extra villa, holiday cottage or rental home, the tax bill is suddenly real and often substantial.
At the same time, new property taxes have been introduced. From 1 January 2024 the absentee owner surcharge (for foreign or non‑resident owners) doubled to 4%, and next year the Vacant Residential Land Tax (VRLT) will sweep statewide (1 Jan 2025) to levy any home left unoccupied more than six months. Most dramatically, from 1 July 2024 Victoria will abolish stamp duty on commercial/industrial purchases – replacing it with a flat annual Commercial and Industrial Property Tax (CIPT). Under the new CIPT regime, buyers of qualifying commercial land pay a final stamp duty (either upfront or via a 10‑year loan) and then, 10 years later, start paying 1% per year of unimproved land value (0.5% for “build-to-rent” developments). Together these reforms have industry experts warning that landlords and investors face some of the country’s highest property taxes.
Impact on Residential Property Owners
For ordinary home investors and retirees, the damage is immediate. Law firms and accountants report floods of new land tax bills landing on people who never paid before. Madison Sloan Lawyers notes that new assessments are “flowing through from the State Revenue Office” and many former retirees or small‑scale landlords have had to start paying tax. Indeed, “many investment properties are now being assessed with land tax,” the firm explains, because the lowered threshold means that holdings as small as $50,000 now trigger the tax.
Real estate industry data confirm this wave of newly taxable owners. The Australian Financial Review recently reported that “more than 400,000 Victorians who run a small business or an Airbnb from the family home have been hit with hefty land tax bills for the first time”. (Importantly, family homes still remain exempt only when the income is very small – under $30,000 per year – and the new $50,000 valuation floor was not breached.) In other words, hobby landlords, AirBnB hosts and home‑based traders across Victoria are waking up to tax notices. As accounting adviser Daniel Butler observes, these changes mean “380,000 more land owners [are] paying land tax in Victoria” than before.
The financial impact is stark even for modest portfolios. Pitcher Partners partners Irina Tan and Craig Whitman illustrate: a couple owning one home plus an investment apartment valued at $120,000 would have paid zero land tax under the old rules, but now “from the 2024 land tax year… they would become subject to a fixed land tax charge of $975 per year” on the apartment alone. PIPA (Property Investment Professionals Australia) analysis similarly notes that a Victorian landlord with $1 million in landholdings could face roughly $2,000 more in tax each year – and “likely much higher” as values rise.
Victorian property leaders warn this will squeeze household budgets. Real Estate Institute of Victoria (REIV) CEO Quentin Kilian cautions that “the biggest impact will be felt by people with smaller holdings as the tax free threshold drops from $300,000 to just $50,000, disproportionately impacting everyday Victorians investing to secure their future”. Kelly Ryan, REIV’s former CEO, similarly urged the government to incentivize rental providers instead of “hitting landlords, small business owners and short-stay providers with wave after wave of new or higher levies”. In practice, many Victorian landlords are already selling up: by late 2024 the state saw tens of thousands of rental properties exiting the market, as investors fled the tax increases.
Owners are scrambling to cope. Property lawyers advise every affected owner to review their holdings and exemptions carefully. For example, Madison Sloan urges taxpayers to “check that the correct property has been noted as your Principal Place of Residence. Similarly, if you have bought a new home but not yet sold your Principal Place of Residence within the same assessment year, discuss any concessions that may apply”. In other words, make sure the vacant home exemption or main home relief is correctly applied. Some owners are even lodging appeals against high valuations or against being newly classified as taxable. Legal commentators note that owners can object formally if they believe the land value is overstated or if an exemption (like the principal residence or farmland provisions) has been misapplied. Importantly, the State Revenue Office requires that any objection be made within 60 days of assessment, so many are rushing to lodge challenges.
Consequences for Commercial Property Investors
Commercial real estate is undergoing its own revolution. The centerpiece is the new Commercial and Industrial Property Tax (CIPT). As Colin Biggers & Paisley lawyers explain, from 1 July 2024 “stamp duty on commercial and industrial property” will be abolished and replaced by an annual levy. Under the CIPT rules, a buyer pays a final stamp duty at settlement (either as a lump sum or via a 10‑year government loan) and then – ten years later – begins paying the CIPT. The tax is flat 1% per year of unimproved land value (half that, 0.5%, for eligible build-to-rent developments). Crucially, there is no tax-free threshold for CIPT, meaning even a small warehouse or shop will eventually incur the full levy.
Proponents argue the scheme will spur investment by removing a big upfront cost – as CBP notes, it is “a welcome change to incentivise businesses to invest in commercial and industrial buildings”. In practice, however, it means planning for a new recurring tax. Investors now factor in that, after a decade, their holding costs will rise by an ongoing 1% of land value. Some analysts warn that over time the CIPT could impose even higher tax burdens than the old duties, since land values typically appreciate.
Meanwhile, ordinary land tax changes also affect commercial owners. The $50,000 threshold applies to all owners, so small businesses that own premises (like a corner store or factory site) may now be taxable on combined property values above $50k. Foreign-owned companies will also feel a double-whammy: the absentee owner surcharge is now 4%, and many foreign corporate holdings are already caught. The upshot is that holding a portfolio of commercial land is generally more expensive under the new regime. Commercial landlords and developers are reviewing lease structures too; in Victoria, lease rent often factors in the landlord’s taxes, so tenants may ultimately foot some of the bill.
Burden on Small Businesses and Home Businesses
Small businesses feel these changes from both angles. Those that lease property will likely see higher rents. As tax experts caution, “landlords impacted by the various land tax changes…will pass the increased costs on to tenants in any way they can”. Indeed, Pitcher Partners and industry bodies warned that the new levies “will ultimately be passed onto renters and small business”. From cafés to small warehouses, Victorian SMEs are bracing for rent hikes or tightened margins.
Home-based businesses – whether a home office, an Airbnb or a tradesperson’s garage – have been hit especially hard. Prior case law had shielded a family home as exempt if business income stayed under $30,000 and the house value fell below the (old) threshold. That grace is now gone for many. As the Australian Financial Review reports, “over 400,000” Victorian homes with side businesses have suddenly fallen into the land tax net. Owners of holiday rentals, Airbnb operators and cottage industries are finding that even though they live on site, the new rules treat their properties as “investment” land.
Advisors recommend these small operators review their situation immediately. Some homeowners are choosing to reclassify rooms or restructure businesses (for example, by splitting a parcel so part remains exempt). Others are appealing to the SRO: for instance, claiming that the household still qualifies for a principal-residence exclusion if the home business is modest. It’s a complex area; as Madison Sloan notes, any owner who recently bought or sold their home should “have a discussion with your financial advisor and/or the State Revenue Office around any concessions”. On the ground, a few families are even considering selling properties or re‑locating out of Victoria, given warnings that the state’s tax burden on investment property is now “the most punitive in the country”.
Legal and Financial Implications
Legally, the reforms carry teeth. Contracts for property sale must be rewritten: from 1 January 2024 Victorian law forbids vendors from including land tax adjustments in most contracts. In practice, this means a seller of a home under $10 million can no longer force the buyer to pay the seller’s portion of the annual land tax. In effect, the vendor must settle their entire land tax bill themselves. Contracts that ignore this rule are void, and non‑compliant sellers face hefty penalties (up to 60 penalty units for individuals). This has already caught some parties unawares: many standard contracts must now be redrafted to remove the usual adjustment clauses.
Financially, the changes have wide ramifications. Landlords and investors are re‑running spreadsheets to see how much more they will owe each year. Retirees with small portfolios are crunching numbers to budget for these new costs. Many have sought advice on creative structures – for example, distributing land among different trusts (noting trusts pay a threshold of only $25,000) – or obtaining property insurance or exemptions where available (special disability trusts, conservation covenants, etc., were lightly expanded in the budget).
Property experts also warn of broader market effects. The Real Estate Institute submission to the 2025 budget urged “a more balanced tax and regulatory regime that includes adequate incentives for rental providers”, arguing that the tax hikes risk diminishing rental supply and pushing families to the sidelines. Anecdotally, agents report that some investors are now pricing those higher land taxes into sale prices or rents, while others are simply exiting the sector. On the other hand, first-home buyers – now exempt from stamp duty on modest homes – have flooded in, buying up many smaller houses that might otherwise have remained rentals.
Coping Strategies
Experts stress that navigating this new regime requires proactive steps. First, property owners should review their assessments immediately. Check that the correct primary residence is exempted and that valuations are accurate. If in doubt, lodging an objection to the SRO can save tens of thousands of dollars in future tax. Professional advisers recommend keeping meticulous records of ownership dates, usage and value assessments to support any appeal.
Secondly, many landlords are renegotiating leases. Commercial tenants are carefully parsing lease clauses – in Victoria, most leases are “gross” or “net” rent, and increases may reflect rising taxes. Some tenants are seeking to pass the cost back to landlords (for example, requesting rent relief on vacant property charges), while others are budgeting for rent rises.
Finally, small investors are reconsidering holding strategies. For some, selling an underperforming rental and buying a different asset in a state with lower taxes is under consideration. Others are restructuring ownership: for instance, transferring a holiday home (often owned by retired couples) into a family trust can keep it under the trust tax threshold of $25,000 if only one or two family members hold it. Financial advisors also note that land tax is deductible against rental income – a small consolation – and that careful estate planning can mitigate generational tax liabilities.
In sum, Victoria’s land tax makeover is affecting almost every corner of the property market. As KPMG analysts put it, this is “the most significant change” in Victoria’s land tax landscape in decades. For residential investors, commercial buyers, and small businesses alike, the new rules demand vigilance. Law firms and real estate professionals alike are stepping up education efforts, helping clients rewrite contracts, lodge appeals and adapt their business plans. But with thresholds lowered, surcharges doubled, and new levies on the horizon, the net effect is clear: owning property in Victoria now carries a higher and more complex tax burden than ever before.
Sources: Analysis is based on commentary from Victorian law firms and tax experts (e.g. KHQ Lawyers, Madison Sloan Lawyers, Colin Biggers & Paisley, KPMG), industry submissions (REIV), and recent news reports. These sources document the legal amendments and real-world responses as owners adjust to the changes. All tax figures and rules are confirmed by official sources (Victorian Budget and SRO guidelines).