Dec 1, 2025 Joel Hernandez

Could your home be subject to land tax?

The relatively recent trend to work from home has sparked speculation about the Victorian State Revenue Office (SRO) seeking to apply land tax to the family home.  While charging land tax to employees working from home is not presently on the cards, if you’re running a business from home in Victoria, you might be surprised to learn that your principal place of residence (PPR) could lose its full land tax exemption.

What Is the PPR Exemption?

Under section 54 of the Land Tax Act 2005, land used and occupied as a person’s principal place of residence is generally exempt from land tax. This exemption also extends to certain trusts and individuals with a right to reside on the property.

However, section 62 introduces a critical caveat: if the property is also used to carry on a substantial business activity, the exemption only applies to the portion of the land used for residential purposes.

What Counts as “Substantial Business Activity”?

The Commissioner of State Revenue considers several factors to determine whether business use is substantial:

• Use of Paid Employees or Contractors: If non-relative staff regularly work on the property, it suggests significant business activity. Family members who live on the property are excluded from this assessment.
• Exclusive Business Use of Space: Dedicating part of the home—like a room or studio—solely for business purposes is a red flag.
• Proportion of Property Used: If more than 30% of the land or building is used for business, it’s likely to be deemed substantial.
• Business Income: Earning over $30,000 annually from home-based business activities may trigger land tax apportionment.
• Other Relevant Factors: The Commissioner may consider additional circumstances, such as signage, client visits, or commercial equipment.

Apportioning Land Tax

If substantial business use is established, the Commissioner must apportion the land’s value between residential and business use. Only the residential portion retains the exemption, and the business-used portion becomes taxable.

Real-World Implications

Consider Leigh, a self-employed web designer who uses 12% of his home for business. While this may not trigger apportionment, if he expands operations, hires staff, or dedicates more space, he could face land tax on the business portion of his property.

SRO activity

The Land Tax threshold drop from $300,000 to $50,000 has triggered hefty bills for over 400,000 home-based business owners. Previously, the business-use portion of their property often fell below the threshold—now, the lower limit is catching many more.

If you’re running a business from home, it’s essential to understand how your setup could impact your land tax liability. Consulting a legal professional can help ensure compliance and avoid unexpected costs.