Property Investment in Victoria – 2025 Tax Changes

In the past year, the Australian property investment landscape has shifted more than most investors anticipated. While the fundamentals of negative gearing remain unchanged at the federal level, the state-driven tax environment and compliance framework, particularly in Victoria, are evolving rapidly. These changes are affecting investor decision-making, profitability, and the way properties are structured and reported.

If you are a property investor or considering becoming one, it is essential to understand where the pressure points are and how to adjust your strategy accordingly.

Land Tax Thresholds and Surcharges: What’s Changed and Who’s Affected

Victoria has significantly expanded its land tax regime. From 1 January 2025, the land tax threshold for properties held in trusts has dropped from $300,000 to just $50,000. This shift now captures many more investors under the land tax net, particularly those who own lower-value residential or regional properties that were previously exempt.

Alongside this lower threshold, marginal tax rates have also increased and are now more steeply progressive. Investors with properties held in discretionary or unit trusts may also face a trust surcharge rate that compounds the liability further. For foreign or absentee owners, an additional surcharge can push total land tax payable to as much as 2.5% of the property’s total value.

This is not just a matter of paying more tax. Higher land tax liabilities change the net return profile of many investment properties, particularly those held for yield rather than capital growth.

How to estimate your land tax exposure:

• Add the taxable land value (not market value) of all non-exempt properties you own or control in Victoria.

• Apply the current year’s marginal rate for individual or trust ownership.

• Include any trust surcharge if applicable.

• If you are classified as an absentee owner, add the relevant absentee surcharge rate on top.

Do trusts still make sense?
Trusts continue to offer strategic benefits in areas like asset protection, income streaming, and estate planning. However, the reduced land tax threshold and surcharge mean the financial case for holding real property in trust structures needs fresh evaluation.

If your trust property portfolio falls into the newly taxable bracket, it’s time to run a comparative analysis: what’s the tax liability in the trust structure versus holding it personally or via a different entity? In some cases, the tax cost may now outweigh the structuring advantages unless the trust is performing other functions, such as supporting a broader business structure or long-term succession strategy.

We are now working more closely with clients to include land tax modelling in their annual portfolio performance reviews to assess exposure and efficiency.

Short-Stay Accommodation: Levy, Licensing and Data Matching

Victoria’s 7.5% levy on gross revenue from short-stay properties, effective 1 January 2025, adds a significant operating cost for property investors running Airbnb, Stayz, or similar accommodation models. This levy is collected in addition to other charges, including municipal registration fees, cleaning requirements, and amenity compliance standards that many councils already enforce.

What’s less visible—but more impactful—is the digital compliance strategy sitting behind this policy shift. The Victorian State Revenue Office is using data-matching tools to identify properties listed on short-stay platforms that may not be correctly disclosed in income tax returns or land tax declarations.

Key risks include:

• Income from short-stay bookings not reported.

• Land tax classification not updated to reflect income-generating use.

• GST thresholds triggered unintentionally if multiple properties are operated commercially.

How to respond:

• Include all platform-based income in your tax return, even if the property is used occasionally or seasonally.

• Ensure your land tax status reflects short-stay usage if income is earned.

• Maintain documentation showing how often the property was rented, the rental income received, and relevant expenses.

• Seek advice on GST obligations if you operate more than one short-stay property or treat it as a business.

The growing regulatory scrutiny means a casual Airbnb side hustle now needs to be managed with full tax and compliance discipline.

Vacant Residential Land Tax: More Properties Now Caught

The Vacant Residential Land Tax (VRLT) in Victoria has expanded in both scope and intensity. What began as a targeted measure for underused inner-Melbourne apartments has become a state-wide compliance regime.

As of 2025, VRLT applies to any residential property left vacant for more than six months in a calendar year, regardless of location. This includes holiday homes, inherited properties not yet occupied, and second dwellings that are not leased or used consistently.

Key tax rates:

• 1% of Capital Improved Value (CIV) in the first year of vacancy.

• 2% in the second consecutive year.

• 3% in the third year if the vacancy persists.

Exemptions exist, but each comes with eligibility rules and documentary requirements. These include major renovations, recently deceased estates, or delayed occupancy following sale or construction. Simply intending to use a property or claiming future rental plans is not enough.

How to respond:

• Keep detailed occupancy logs and usage evidence for all properties.

• Retain utility bills, booking receipts, and access logs to demonstrate use.

• File exemption claims with supporting documentation before deadlines.

• If a property is no longer used consistently, consider moving it to a long-term rental arrangement or reassessing whether it should remain in your portfolio.

With VRLT now costing up to 3% of property value annually, the economic logic of keeping properties empty has eroded substantially.

Investor Behaviour: Trends and Shifts in a Changed Landscape

Instead of making predictions or providing investment advice, it is more practical to examine how tax and policy changes are influencing investor decisions in Victoria’s property market.

More than 24,000 rental properties were withdrawn from the market during the 2023–24 financial year. This has been largely attributed to increased land tax liabilities, the expanded Vacant Residential Land Tax, and operational restrictions on short-stay accommodation. These shifts are not just anecdotal. They are supported by listing data, tenancy reports and state revenue office insights.

Key trends include:

• A noticeable shift away from short-term rental strategies as the cost and compliance burden increases.
• Growing interest in diversifying holdings geographically to states with simpler or more stable tax settings.
• A higher reliance on professional tax and structuring advice, particularly where property is held in trusts or across multiple entities.

Investors are becoming more strategic. Many are now building tax forecasting and compliance reviews into their regular portfolio assessments. Instead of making reactive decisions based on market sentiment, they are modelling the full cost of ownership, including state-based taxes and reporting obligations, before making structural changes.

What this means for you:
Staying informed on policy shifts and understanding how they interact with your ownership structure is now essential. Whether you continue holding or are evaluating future opportunities, aligning your strategy with the current tax and compliance environment is a necessary step for long-term efficiency.

Compliance and Structuring: What Needs Attention Now

The rising complexity in tax law and compliance enforcement means structure, reporting, and documentation can no longer be an afterthought.

Key priorities for 2025:

1. Structure Review
Entity choice now carries not just income tax and asset protection implications, but direct consequences for land tax and VRLT. If you’ve historically used a trust, now is the time to re-run the numbers and compare against individual or joint ownership, especially for properties valued under $600,000.

2. Documentation and Timing
State and federal regulators are increasingly relying on third-party data and cross-agency matching. That means the burden of proof sits with you. Keep detailed records of property use, short-stay income, and land use changes.

3. Consolidated Strategy
Don’t assess these issues in isolation. Property strategy needs to balance tax efficiency, compliance, risk management, and lifestyle or business goals. What you save in land tax may cost more in missed planning opportunities if your structure can’t support long-term growth or flexibility.

Annual reviews should now include tax structure optimisation, compliance health checks, and location risk assessments.

Property Investment in Victoria 2025 Tax Changes: Summary

The property investment environment in 2025 is more complex, more visible to regulators, and more costly in key states like Victoria. While negative gearing rules remain unchanged, the surrounding tax and compliance context has shifted dramatically.

If you own property through a trust, operate a short-stay rental, or manage a holiday home, now is the time to review your structures, tax exposure, and compliance posture.

Davidsons can help you:

• Calculate your land tax and VRLT exposure based on your actual holdings.

• Assess whether your current structure remains efficient.

• Ensure all property income and exemptions are reported and documented correctly.

• Identify divestment or restructuring opportunities to improve after-tax returns.

Let’s Talk Strategy

If you own investment property, or you’re thinking about expanding your portfolio, now is the time to get proactive. Book a consultation with our team to clarify your position, review your structures, and ensure you’re across the latest compliance shifts. We’ll help you make confident, informed decisions backed by the numbers.

Contact the Davidsons team by completing an enquiry form, calling us on 03 5221 6399, or emailing info@davidsons.com.au.

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Disclaimer: The information provided in this article is factual in nature and objectively ascertainable and, therefore, does not constitute financial product advice. Importantly, the factual information that has been supplied does not take into account your personal circumstances, objectives or goals.