A foreign investor holding residential property in Victoria today faces an annual land tax surcharge that is double what it was a year ago. From the 2024 assessment year, the State Revenue Office lifted the absentee owner surcharge rate from 2 per cent to 4 per cent on the taxable value of all residential land. The change, legislated in the 2023–24 Victorian state budget, arrived alongside a redesign of the Vacant Residential Land Tax that will push that levy from a flat 1 per cent of capital improved value to a progressive 1–2–3 per cent scale from 1 January 2025. For an apartment in inner Melbourne left unoccupied for three years, the vacancy tax alone will soon reach $30,000 annually on a $1 million assessment — a non‑deductible holding cost that can erase the entire net yield. Across the Murray, New South Wales has not moved on its foreign surcharges in recent years. The 8 per cent surcharge purchaser duty and the 4 per cent surcharge land tax remain unchanged, yet they continue to bite hard because they apply without any tax‑free threshold. These state‑based imposts now sit inside a lending environment where APRA’s 3 per cent serviceability buffer forces every recurring surcharge to be deducted from rental income in the bank’s calculator. With the major banks capping loan‑to‑value ratios for foreign borrowers at between 70 and 80 per cent, and with non‑bank lenders also tightening their funding lines, the spread between what a purchase‑price figure suggests and what can actually be borrowed has widened materially. The dated regulatory settings in both states, combined with the 2025 VRLT trigger in Victoria, demand a line‑by‑line recalibration of holding costs. The rates that follow are the official figures from the two state revenue offices as at mid‑2024, and they are the numbers that lenders, valuers and the Australian Taxation Office now feed straight into their models.
NSW surcharges for foreign buyers
New South Wales imposes two foreign‑investor surcharges: one at settlement and one every year as long as the property is held. Both are calculated on the unimproved land value — not the purchase price — and both apply to residential property, including apartments, houses, and vacant residential blocks.
Surcharge purchaser duty: 8 per cent
At contract date, a foreign person pays standard transfer duty plus a flat 8 per cent surcharge on the dutiable value of the property. The dutiable value is ordinarily the purchase price or current market value, whichever is higher. Revenue NSW’s website, last updated on 1 July 2024, confirms the 8 per cent rate and states that the surcharge has been in effect since 1 July 2017 (Revenue NSW, July 2024).
There is no concession or threshold. A foreign buyer acquiring a $1.2 million Sydney house will incur standard transfer duty of $50,875 plus a surcharge of $96,000, bringing total stamp duty to $146,875. The surcharge applies to the entire property even when only one purchaser is a foreign person; joint‑ownership strategies do not dilute the obligation. The definition of foreign person aligns with the Foreign Acquisitions and Takeovers Act 1975 and includes temporary residents, foreign companies, and trusts with a foreign beneficiary.
Surcharge land tax: 4 per cent with no threshold
From midnight on 31 December each year, a foreign owner of residential land is liable for surcharge land tax at 4 per cent of the taxable land value. The rate moved to 4 per cent from the 2023 land tax year, having been introduced at 0.75 per cent in 2017 and then lifted to 2 per cent in 2018.
Crucially, the surcharge applies from the first dollar of land value. The ordinary land‑tax threshold — $969,000 for 2024 — does not operate for foreign persons, and the principal‑place‑of‑residence exemption is not available. That means a foreign investor who owns a single apartment with a land value of $350,000 will pay $14,000 in surcharge land tax annually, despite owing zero ordinary land tax. For a house with a $900,000 land value, the surcharge comes to $36,000, with ordinary land tax adding a further $5,388, assuming the property does not qualify for the PPR exemption.
These costs are treated as statutory outgoings by all big‑four banks and by the major non‑bank lenders. They must be entered into the lender’s net‑rental‑income worksheet and are not optional disclosures.
Victoria’s three‑pronged cost: additional duty, absentee surcharge, and vacancy tax
Victoria levies the same 8 per cent upfront duty surcharge as NSW, but it adds a parallel absentee owner surcharge on land tax and a standalone Vacant Residential Land Tax that NSW does not have. The three interact to create a holding‑cost profile that is substantially more punitive for a property left empty.
Foreign purchaser additional duty: 8 per cent
The State Revenue Office Victoria has maintained the foreign purchaser additional duty at 8 per cent since 1 July 2019. It is calculated on the dutiable value of residential property and is payable on top of the standard transfer duty. A $900,000 Melbourne purchase absorbs $44,000 in standard duty plus $72,000 in FPAD, for a total stamp duty bill of $116,000. The surcharge also applies to an interest in a land‑rich company or trust, and to a significant interest in a residential property‑holding entity.
Absentee owner surcharge: doubled to 4 per cent from 2024
Victoria’s absentee owner surcharge is assessed on the total taxable land value of all residential property held by an absentee owner as at midnight on 31 December. The State Revenue Office confirmed in its 2023–24 Budget papers that the rate rose from 2 per cent to 4 per cent for the 2024 land tax year (SRO Victoria, May 2023).
An absentee owner is a foreign individual who does not ordinarily reside in Australia, an absentee corporation, or an absentee trust. Unlike the NSW surcharge, Victoria’s absentee surcharge is added to ordinary land tax, which is still calculated with the standard thresholds. However, absentee owners do not receive the benefit of the $50,000 threshold for land tax; their surcharge is levied on the whole taxable land value.
A foreign owner holding a single Melbourne house with a land value of $750,000 will be assessed for ordinary land tax of approximately $1,650 (2024 rates) plus an absentee owner surcharge of $30,000, yielding a total land‑tax liability of $31,650. In NSW, the same land value would produce a surcharge of $30,000 but likely zero ordinary land tax, so the Victorian total is about $1,650 heavier before any vacancy impost is applied.
Vacant Residential Land Tax: the 1‑2‑3 scale from 2025
The VRLT was introduced on 1 January 2018 at 1 per cent of the capital improved value of a property that was unoccupied for more than six months of the preceding calendar year. It applies to residential properties in 16 inner‑ and middle‑Melbourne council areas. From 1 January 2025, the rate structure changes to a progressive scale: 1 per cent for the first vacancy year, 2 per cent for the second consecutive year, and 3 per cent for the third and subsequent years (State Taxation Acts Amendment Act 2023, s. 18).
CIV is the council valuation and includes the building. An apartment with a CIV of $850,000 that is vacant throughout 2024 will incur VRLT of $8,500 when the assessment is issued in 2025 — the 1 per cent rate applies because 2024 is treated as the first year of vacancy under the transitional rules. If the same apartment remains empty in 2025, the 2026 assessment will use the 2 per cent rate, producing a charge of $17,000. A third vacant year in 2026 triggers a $25,500 charge.
The VRLT is not tax‑deductible against Australian income, and it is not credited against any other state or federal tax. It sits entirely on the after‑tax cash flow of the owner.
How lenders treat surcharges and vacancy costs
Every dollar of state surcharge and VRLT flows through to borrowing‑capacity calculations. Because foreign‑investor mortgages are already subject to tighter LVR caps, the additional costs can mean the difference between a straightforward approval and a deal that does not stack.
Big‑four bank policies: negative rental income hits borrowing capacity
The major banks use a standardised rental‑income calculation for foreign borrowers: gross annual rent, shaded to 80 per cent, less property expenses. For a non‑resident, “expenses” now include council rates, water, body‑corporate fees, repairs allowance — and the full state land‑tax surcharge and any VRLT liability. The net figure is then stressed with a 30‑year principal‑and‑interest repayment at a rate 3 percentage points above the actual loan rate.
A foreign investor with a $900,000 loan on an apartment yielding $750 per week in rent might show gross rental income of $39,000, shaded to $31,200. If annual outgoings including a $14,000 NSW surcharge land tax amount to $28,000, the net rental income is just $3,200. In the serviceability model, that $3,200 is offset against the stressed monthly repayment of $6,350 on a $900,000 loan, producing a substantial shortfall that must be covered from non‑Australian income. Most banks cap borrowing power such that total debt‑to‑income ratios stay below 6‑to‑7 times, and the shortfall can push the DTI well outside policy.
Non‑bank and specialist lenders: surcharge recognition but no automatic relief
Non‑bank lenders such as La Trobe Financial, Pepper Money, and Bluestone typically allow a higher LVR for foreign‑income borrowers — sometimes up to 75 per cent — and may accept a 100 per cent rental‑income inclusion rate where the tenancy is documented. However, they still require the surcharges to be listed as a known commitment. Some non‑bank credit assessors will annualise the VRLT and add it to the customer‑stated expenses; others will request a tax assessment notice. The same arithmetic applies: a $30,000 absentee owner surcharge adds $2,500 per month to the holding cost, reducing the net surplus by that amount. In a rising‑rate environment, where hedging costs on foreign‑currency income are already elevated, this extra cost layer can materially shrink the maximum loan amount.
LVR limits and DTI calculations for foreign buyers
APRA does not prescribe an LVR cap for foreign borrowers, but the major banks have voluntarily set maximum LVRs between 70 per cent and 80 per cent, with some applying a 60 per cent LVR for higher‑density apartments. The surcharges do not count as debt, but they reduce net income and therefore inflate the effective debt‑to‑income ratio. A foreign household earning A$250,000 in overseas income that holds a $700,000 mortgage on a VIC property with $31,650 in annual state taxes will see its “effective” DTI rise by approximately 0.6x — enough to exceed a 7x DTI ceiling at many institutions. This is why pre‑approvals that ignore the surcharge can quickly become unserviceable at formal approval stage.
Enforcement and compliance risks in 2024
The surcharges and the vacancy tax are not voluntary declarations. Both states have increased their audit activity, and the federal government’s data‑matching capability links ATO vacancy‑fee records with state land‑title databases.
State Revenue Office audits and penalties
Revenue NSW conducts annual foreign‑owner identification programs using visa data, water‑usage records, and real‑estate transaction returns. Penalties for non‑disclosure can reach 75 per cent of the avoided surcharge, plus market‑rate interest. The SRO Victoria has employed a dedicated VRLT compliance team since 2021 and routinely cross‑matches water consumption over summer with council rate notices. In 2023, a single VRLT audit program identified over 400 inner‑city apartments that had been under‑reported as occupied.
ATO vacancy fee and FIRB compliance
Foreign owners of residential property acquired after 9 May 2017 must also file an annual vacancy fee return with the ATO if the dwelling is not occupied or genuinely available for rent for more than 183 days in a 12‑month period. The federal vacancy fee currently mirrors the FIRB application fee and can be as high as $50,000 for dwellings valued over $5 million. It is separate from the VRLT and is payable in addition to state taxes. FIRB conditions also restrict the number of properties a foreign investor can hold, and failure to comply can result in a divestment order.
NSW vs VIC: a holding‑cost comparison for 2024–25
Assume a foreign‑owned residential property with a land value of $800,000 and a CIV of $1.2 million, situated in a VIC VRLT zone and an equivalent Sydney suburb. The property is tenanted and therefore attracts no VRLT in the first year, though the comparison isolates the vacancy cost separately.
At purchase:
NSW stamp duty (standard) = $48,850; surcharge = $96,000; total = $144,850.
VIC stamp duty (standard) = $55,000; FPAD = $96,000; total = $151,000.
The VIC total is about $6,150 higher due to Victoria’s steeper standard duty schedule.
Annual land‑tax surcharge (occupied):
NSW surcharge = 4% × $800,000 = $32,000; ordinary land tax = $0 (land value below threshold).
VIC absentee surcharge = 4% × $800,000 = $32,000; ordinary land tax = approx. $2,350 (using 2024 rates).
Total VIC land tax = $34,350, $2,350 more than NSW.
**Vacancy tax