The Annual Cost of Holding Property in Victoria: Land Tax, Vacancy and Surcharges

The purchase price of a second property is the part everyone models. The annual cost of holding it is the part that surprises people, and in Victoria it has changed materially in the last few years. If you own, or are about to buy, a holiday house, an investment property, or a family home held through a trust, the ongoing tax position deserves as much attention as the contract.

Land tax: the base position

Victoria levies land tax annually on the total taxable value of land you own at midnight on 31 December, excluding your principal place of residence and other exempt land. Two features catch people out. First, it is assessed on your aggregated holdings, not property by property, so a second property can push the whole portfolio into a higher bracket. Second, it is assessed on site value (the land alone), so an expensive house on a modest block may attract less than a modest house on a large one. The general threshold was lowered and a temporary COVID debt levy added in recent years, which brought a great many owners of a single investment property into the system for the first time.

The trust surcharge

Land held in a trust is assessed at a surcharge rate with a lower threshold, unless beneficiary or unitholder details are notified to the State Revenue Office so that the land can instead be assessed in the beneficiaries’ hands. This is a common and expensive oversight: a property bought in a family trust for asset protection quietly attracts thousands more per year in land tax than the same property held personally. If you hold through a trust, check what has actually been notified.

Vacant residential land tax

This is the significant change. Victoria’s vacant residential land tax applied originally to a handful of inner and middle Melbourne councils; from 1 January 2025 it applies across the whole of Victoria. Broadly, a residential property that is unoccupied for more than six months in a calendar year is liable, at a rate that escalates for consecutive years of vacancy. Unimproved residential land in metropolitan Melbourne that has remained undeveloped for an extended period can also be caught.

There are exemptions, and the one most relevant here is the holiday home exemption: available where the owner has a principal place of residence in Australia and uses the holiday home for at least four weeks in the year, with rules about how it is owned and used. It is not automatic. The tax is self-reporting. Owners are required to notify the State Revenue Office of a liable property by 15 January each year, and penalties apply for failing to do so. A Portsea or Flinders house used for a few long weekends a year may be liable and the owner may not know it.

The absentee owner surcharge

Land owned by an absentee individual, corporation or trust attracts an additional surcharge on top of land tax. The definition captures foreign natural persons who are not ordinarily resident in Australia, and can capture trusts and companies with foreign interests. Where a family trust has a broadly drafted beneficiary class, this needs checking, and in some cases a deed amendment before contracts are exchanged is the answer.

Foreign purchaser additional duty

On acquisition rather than holding: a foreign purchaser of residential property pays additional duty on top of ordinary stamp duty. Combined with the absentee surcharge and Foreign Investment Review Board restrictions on acquiring established dwellings, the position for non-resident buyers is materially different from that for residents, and getting the entity structure wrong is expensive. See our note on structuring in buying a prestige property in Melbourne.

Windfall gains tax

Relevant if you hold land with rezoning potential. Where a rezoning increases land value above a threshold, a windfall gains tax applies to the uplift, with limited exclusions. It is payable by the owner at the time of rezoning, which can be well before any development or sale generates cash. Anyone buying land on a rezoning thesis should model this.

What to actually do

1. Review how each property is held (personally, jointly, in a trust, in a company) against what it is used for, and what you intend for it.
2. Check trust notifications with the State Revenue Office if any land is held in a trust.
3. Assess vacant residential land tax exposure for every property that is not your home and not tenanted, and diarise the January notification date.
4. Check absentee status for any entity with a foreign connection, including trusts with wide beneficiary classes.
5. Model the annual holding cost before you buy, not after the first assessment arrives.
6. Align the structure with your estate plan, because unwinding a structure later usually means paying duty a second time. We routinely review a client’s estate plan alongside a property portfolio.

Rates, thresholds and exemptions in this area change with almost every state budget, and the figures above are deliberately general. Confirm the current position with the State Revenue Office or with us before making a decision.

Empower Legal Solutions advises property owners on structure, holding costs and estate planning across Melbourne, working alongside your accountant. Pricing is disclosed before you engage us. Arrange a confidential first conversation.

Frequently asked questions