Background

On 6 October 2026, the Victorian Civil and Administrative Tribunal (VCAT) delivered its first decision on the holiday home exemption from vacant residential land tax (VRLT). This decision provides insight on the practical application of the holiday home exemption.

How the Holiday Home Exemption Works

To recap, VRLT can apply to a residential property that is vacant for more than six months in the previous calendar year. When VRLT was first introduced on 1 January 2018, it applied to residential property in inner and middle Melbourne. This was subsequently expanded state-wide since 1 January 2025.

The current rate of VRLT is 1% of the property’s capital improved value (CIV), going up to 3% if the property is vacant for 3 or more consecutive years. Based on a CIV of $1,500,000 – the applicable VRLT for a vacant residential property in Victoria would be $15,000 in the first year, $30,000 in the second year and $45,000 in the third year onwards. On an SRO audit and determination that a tax shortfall exists, penalties and interest may also apply.

The holiday home exemption under section 88A of the Land Tax Act 2005 (Vic) can provide some relief provide that, in the preceding calendar year:

• the owner used and occupied another property in Australia as their principal place of residence;
• the owner or a qualifying relative used and occupied the property as a holiday home for at least four weeks, whether continuously or across separate stays;
• the Commissioner of State Revenue is satisfied that the property was used and occupied as a holiday home; and
• if the property is owned by a company or trust – there are additional requirements, including that the company or trust must have owned, or entered into a contract to purchase, the property as of 28 November 2023.

When assessing genuine holiday use, the Commissioner must consider the property’s location, its distance from the owner’s main home, and the nature and frequency of its use.

The Carlton Apartment Decision

In Hughes v Commissioner of State Revenue [2026] VCAT 806 (Hughes), the owners claimed a property in Carlton North as their principal place of residence and claimed the holiday home exemption on a Carlton apartment approximately 2.2 km away.

VCAT found that the owners had not proved at least four weeks of qualifying holiday use in each relevant year. The owners relied on a logbook, utility bills and evidence from Mrs Hughes and her brother. However, Mrs Hughes was unable to provide details of what she did on the particular dates recorded and whilst her brother (who ordinarily lived in the ACT) also corroborated the dates of his use and occupation of the apartment with the owners’ records, he did not produce independent material supporting his travel from Canberra or their overnight stays together. This finding was sufficient for VCAT to disallow the holiday home exemption.

VCAT also considered whether the apartment was genuinely used as a holiday home. Crucially, whilst VCAT accepted that a holiday home could be located close to the city or in urban areas, it found that the short distance between the apartment and the owners’ primary residence did not support a genuine holiday use.

As a result, VCAT affirmed the SRO’s VRLT assessments on the apartment.

The Proximity Factor

VCAT considered whether the distance between the owners’ principal place of residence in Carlton North and the claimed holiday home apartment in Carlton was consistent with travel ordinarily undertaken when someone has a day or several days available for a holiday. It gave examples of travel to the Mornington Peninsula and from Woodend to Melbourne, which could take about an hour by car without traffic.

Whilst the holiday home exemption does not prescribe a specific proximity requirement or that a longer distance between one’s primary residence and claimed holiday home will satisfy the holiday home exemption. The decision in Hughes makes it clear that claiming the holiday home exemption on a property close to the owner’s primary residence home should be treated with care and the taxpayer needs to be prepared to explain how the relevant stays amounted to holidays and how the property was used during these stays. The decision suggests that claiming a holiday home in Metropolitan Melbourne, while also having a principal place of residence somewhere else in Metropolitan Melbourne, will generally be difficult.

Evidence of Holiday Use

Notwithstanding the proximity issue, Hughes also shows the importance of keeping clear records to support one’s claim of the holiday home exemption.

We recommend recording each holiday stay when it happens. Based on Hughes, we consider that records should include:

• arrival and departure dates;
• each person who stayed and their relationship to the owner;
• the purpose of the stay and the activities undertaken; and
• supporting material that can be linked to that stay.

Supporting material might include dated photographs, event bookings, travel records or local purchases.

We note that the utility bills submitted by the taxpayers in Hughes provided limited assistance as VCAT ultimately determined that these bills did not establish who used the apartment or the purpose of that use.

Therefore we consider that more detailed records such as an entry recording a weekend away, the family members present and a local event attended provides better evidence beyond a simple logbook of use dates.

VCAT also noted the absence of photographs supporting the claimed holiday use, including an assertion by the Hughes’ about watching New Year’s Eve fireworks. In this regard, contemporaneous photographs can assist, although section 88A does not impose a separate requirement to photograph every stay. The practical takeaway here is to retain enough contemporaneous material to explain the claimed use if it is challenged at a later time.

Expansion of the Holiday Home Exemption

Notwithstanding the above, the requirements of the holiday home exemption for the relevant taxable years (2020 to 2024) in Hughes were narrower and Mrs Hughes’ brother’s own use of the Carlton apartment did not assist with satisfying the exemption’s requirements at the time. As from 1 January 2025, qualifying holiday use by relatives of the owner can count towards the four-week requirement.

What Owners Should Do Now

Owners should review their actual use and supporting records before claiming the holiday home exemption.

Importantly, owners of residential property in Victoria are obliged to notify the SRO by 15 February each year if their residential property was ‘vacant’ for the purposes of VRLT in the previous year and if an exemption is being sought.

To discuss the holiday home exemption, review your ownership arrangements, potential VRLT liability or to respond to an SRO investigation, please contact Velocity Legal’s property team.

This article provides general information only and does not constitute legal advice. You should obtain advice tailored to your circumstances before acting on it.