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Victoria's land tax surcharge for absentee owners

Victoria applies the highest land tax rates and the broadest surcharge framework in Australia. For investors who are or become “absentee owners” - the technical definition is broader than the casual use of the term - land tax surcharges can make investment economics fundamentally uneconomic.

The three Victorian surcharge layers

1. Absentee owner surcharge: 4% Applied to land held by any owner who is:

  • An individual not ordinarily resident in Australia (either no residency, or not living here for 6+ months in the tax year)
  • A foreign corporation
  • A foreign trust

The 4% is on top of the general land tax rate. On a $1m land value, the additional cost is $40,000/year.

2. Vacant residential land tax: 1% Applied from 2018, expanded significantly from 2024. Applies to properties in specified inner and middle Melbourne LGAs (expanded to all of Victoria from 2025) that are left vacant more than 6 months of the year.

On a $1m land value, $10,000/year extra.

3. Foreign purchaser additional duty: 8% One-time, at acquisition. Applies to foreign persons buying residential land. Stacks with standard stamp duty. On a $1m purchase: $80,000 extra duty.

Stacking examples

Consider a foreign individual buying a $900k Melbourne apartment and holding it substantially vacant:

  • Stamp duty (general): ~$50,000
  • Foreign additional duty (8%): $72,000
  • Annual land tax (base): ~$8,000 on land value ~$450k
  • Absentee surcharge (4%): ~$18,000
  • Vacant land tax (1%): ~$4,500

Acquisition cost beyond purchase: $122,000. Annual carrying cost: $30,500.

To break even on a 10-year hold, the property needs to appreciate ~16% above its initial value just to cover these state-imposed costs, before considering interest, agent fees, and income tax.

Who counts as “absentee”

The VIC definition is specific:

  • Individual: any person who is not ordinarily a resident of Australia - applied via a 6-month test. A person resident in Hong Kong who visits Melbourne for 3 weeks in the tax year is absentee.
  • Corporation: any non-Australian-resident corporation, or any Australian-resident corporation where a controlling interest is held by foreign persons.
  • Trust: any trust where a substantial beneficial interest (generally >50%) is held by foreign persons.

Permanent Residents of Australia are generally not treated as absentee, provided they are genuinely resident.

Who gets caught by surprise

Australian citizens who move overseas: a citizen who relocates to Singapore for work becomes absentee if they don’t meet the 6-month residency test. Their Victorian investment properties trigger the 4% surcharge.

Australian residents with offshore-resident family beneficiaries: if a discretionary trust has a beneficiary ordinarily resident overseas, the entire trust’s land holdings may be caught.

Family trusts with grandchildren born overseas: the trust deed’s typical broad beneficiary class can include foreign-resident grandchildren, triggering absentee status on all trust property.

What avoids the surcharge

  • Being Australian-resident for tax purposes and a Victorian-resident for at least 6 months of the tax year
  • Buying through an Australian-resident company with majority Australian-resident shareholders
  • Structuring the trust deed to exclude non-resident beneficiaries explicitly (via deed of variation, executed before the first land tax assessment)

The 2024 expansion

From January 2024, the vacant residential land tax was extended beyond inner Melbourne to all metropolitan Melbourne (all 32 metropolitan LGAs). From January 2025, it was extended to the entire state of Victoria.

This change has significantly increased the land tax bill for investors holding short-stay (Airbnb) properties. A property used only 4 months of the year as short-stay is now classified as vacant for the remaining 8 months, and the 1% VRLT applies on top of normal land tax.

The investor takeaways

  1. If you are an Australian citizen planning to move overseas temporarily, document your intended return. Partial-year residency tests are fact-specific.

  2. Review your family trust deed. If it includes foreign beneficiaries, amending it may save substantial land tax.

  3. Short-stay (Airbnb) properties are now significantly more expensive to hold in Victoria. Model the full tax cost before adopting a short-stay strategy.

  4. For non-residents, Victoria is currently the most expensive state to hold investment property. Consider NSW, QLD, or SA instead.