Tax considerations for holiday homes: CGT, Vacant Residential Land Tax & Land Tax explained

Written by Shara Cox & Daniel Dubois

Owning a holiday home can be a wonderful lifestyle investment - a place to unwind, create memories, and potentially build long-term wealth. However, some owners may not be aware that the tax treatment of a holiday property is very different from their main residence.

Below is an overview of three key taxes that may apply: Capital Gains Tax (CGT), Vacant Residential Land Tax (VRLT), and Land Tax.

Capital Gains Tax (CGT)

Unlike your principal place of residence, a holiday home generally does not qualify for the main residence CGT exemption.

This means that when you sell the property, any increase in value from the purchase price (after allowing for eligible costs such as stamp duty, legal fees, and improvements) may be subject to CGT.  You also cannot divide ownership of your home and holiday property between you and your spouse to obtain the concession.

Key points to know:

  • If you’ve owned the property for more than 12 months, you may be eligible for the 50% CGT discount (for individuals and some trusts).

  • Careful record-keeping of purchase costs and capital improvements is essential to minimise the eventual tax impact.

There are also careful tax planning considerations associated with converting your holiday home into your prime residence (or vice versa).

Guidance on CGT rules is available from the Australian Taxation Office, but personalised advice is recommended before selling.

Short term holiday stays

Owning a holiday home that is rented out as short-term accommodation (for example through platforms like Airbnb or Stayz) can have significant tax consequences. Where the property is genuinely available for rent at market rates, owners can claim deductions for expenses (such as interest, council rates, insurance, cleaning and depreciation), but these must be apportioned for any private use periods.

Importantly, capital gains tax still applies on sale unless the property qualifies for the main-residence exemption, and even then the exemption may be reduced where the home produced income. The Australian Taxation Office also closely reviews short-term rental claims, particularly where properties are blocked out for personal use, priced above market, or not actively advertised. Careful record-keeping of occupancy days, expenses, and advertising evidence is essential to ensure deductions are supportable and CGT outcomes are correctly calculated.

Land Tax

Land tax is an annual state-based tax calculated on the unimproved value of land holdings above certain thresholds.  As a holiday home is not your principal place of residence, it typically does not qualify for the main residence exemption, meaning land tax may apply each year.

Things to keep in mind:

  • Thresholds, rates, and surcharges vary by state.

  • Owning multiple properties (including other rental properties) can push you into higher land tax brackets.

  • Ownership structure (individual, trust, company, or SMSF) can significantly affect the amount payable.

Vacant Residential Land Tax (VRLT)

In some jurisdictions (such as Victoria), holiday homes may be caught by Vacant Residential Land Tax if they are not occupied for a minimum period during the year.

Broadly, VRLT is designed to encourage housing availability by imposing an annual tax on homes that remain vacant for extended periods.

Important considerations:

  • Genuine holiday homes may qualify for exemptions if they meet specific usage criteria.

  • Evidence of occupancy (such as utility bills or booking records) may be required.

  • The rules and thresholds can change, so annual review is important.

Planning opportunities

While these taxes can add to the cost of owning a holiday home, proactive planning can help manage the impact. Strategies may include:

  • Structuring ownership appropriately from the outset

  • Keeping detailed records of all costs

  • Reviewing usage patterns to ensure eligibility for exemptions

  • Seeking advice before selling or changing how the property is used

A holiday home can be both a lifestyle asset and a financial investment, but it comes with tax complexities that differ from your family home. Understanding how CGT, VRLT, and land tax interact can help you avoid surprises and make more informed decisions about buying, holding, or selling.

If you own or are thinking of buying a holiday home, it’s worth reviewing your tax position. Contact us to discuss how CGT, land tax, and vacant property rules may affect you.

Jenni Anderson