How Do Victoria's 2026 Vacant Land and State Tax Changes Affect Melbourne Investors?

From 1 January 2026, Victoria's Vacant Residential Land Tax (VRLT) applies statewide—not just to metropolitan Melbourne—VRLT expanded to all of Victoria from 1 January 2025 (with progressive rates applying from 2025), and from 1 January 2026 it also applies to certain long-undeveloped residential land in metropolitan Melbourne, meaning any residential land in Victoria that remains vacant for more than six months in a calendar year now attracts a 1% annual penalty on the land's capital improved value, rising to 2% for land vacant two years and 3% for three or more years (current VRLT rates). The State Revenue Office requires all owners of residential land vacant on or after 1 January 2026 to lodge a notification by 15 February 2026, even if an exemption applies. The 15 February 2026 deadline applies to eligible land that was vacant in 2025. Simultaneously, changes to Victoria's land tax adjustment rules prohibit vendors from passing land tax to buyers in contracts under $10.7 million signed after 1 January 2026 the prohibition applies to contracts entered into on or after 1 January 2024; the CPI-indexed threshold for the year starting 1 January 2026 is $10.7 million, and the metropolitan inner-east congestion levy area has expanded (2026 congestion levy changes). Together, these measures fundamentally alter the economics of land banking, slow developments, and investment property cashflows across Melbourne, Geelong, Bendigo and every Victorian regional centre.

What Is VRLT and Why Has It Expanded Beyond Melbourne?

Vacant Residential Land Tax was introduced in 2018 to discourage land banking in inner and middle-ring Melbourne suburbs where housing demand was acute but blocks sat undeveloped. The original zone covered 16 local government areas in inner and middle Melbourne. From 2026, the Victorian government removed the geographic boundary: VRLT now applies to any residential-zoned land in Victoria that is vacant for more than six months in any calendar year, whether the block is in Brunswick, Tarneit, Geelong, Ballarat or Mildura. VRLT’s “statewide” application for vacant homes commenced from 1 January 2025.

"Vacant" means the land has no habitable dwelling, or the dwelling is unoccupied and not genuinely available for rent or sale. VRLT vacancy is based on whether a home has been lived in for more than 6 months in the relevant year, and listing alone doesn’t automatically prevent liability. Key exemptions include:

• Land that is exempt from land tax (including eligible principal place of residence land)
• Eligible holiday homes
• Land where there is a change of ownership during the relevant year
• Land that became residential land during the year (time-limited)
• Land that is incapable of residential development
• Land adjoining a principal place of residence
• Certain work accommodation
• From 1 January 2026, certain land with a residence that was under construction/renovation or uninhabitable in the previous year

The penalty rate is 1% of the capital improved value (CIV) in the first year the land is vacant, 2% in the second consecutive year, and 3% for three or more consecutive years (current VRLT rates). For a vacant block in Tarneit valued at $450,000 CIV, the annual VRLT liability is $4,500 in year one, $9,000 in year two, and $13,500 in year three—costs that rapidly erode any speculative gain from holding undeveloped land. For undeveloped land, VRLT applies (from 1 January 2026) to eligible land in metropolitan Melbourne that has remained undeveloped for a continuous period of 5 years or more.

The 15 February 2026 Notification Deadline and What Happens If You Miss It

The State Revenue Office has clarified that all owners of residential land that meets the VRLT criteria must lodge a VRLT notification by 15 February (and by 15 February 2026 for land that was vacant in 2025), regardless of whether they believe an exemption applies. The notification is filed online via the SRO portal and requires details of the property, the period of vacancy, and the grounds for any claimed exemption.

How Victoria's 2026 Land Tax and Adjustment Rule Changes Reshape Returns

Separate from VRLT, Victoria's general land tax regime also evolved in 2026. The land tax-free threshold remains $50,000 in total site value (aggregate of all Victorian land holdings), but rates scale progressively: 0.2% for site values $50,000–$100,000, rising to 0.375% for $100,000–$300,000, and higher tiers peaking at 2.25% for site values exceeding $3 million. From 2024 onwards, the SRO’s “general rates” are expressed as fixed amounts plus percentages (e.g., $500 for $50,000 to < $100,000), with the top marginal rate shown in the SRO table. Investors with multiple properties often breach the threshold quickly; for example, owning a Brunswick townhouse (site value $400,000) and a Tarneit house (site value $250,000) produces a combined site value of $650,000, generating annual land tax of approximately $2,975 under the 2026 rates. Using the SRO’s current general rates, $650,000 would calculate at about $2,550.

More significantly, from 1 January 2026, vendors cannot pass land tax adjustments to buyers in contracts of sale under $10.7 million unless explicitly agreed in writing. Previously, it was standard practice for vendors to recover the portion of land tax attributable to the period before settlement by adjusting the settlement statement. Under the new prohibition, the vendor bears the full annual land tax liability, regardless of when settlement occurs. This change affects investors selling during the financial year: a vendor who lists in January 2026 and settles in May will pay the entire 2026 land tax bill (issued in December 2025 or January 2026) despite owning the property for only five months of the year. Buyers benefit from lower effective purchase costs, but vendors must factor land tax into net sale proceeds and pricing strategies. The prohibition applies to contracts entered into on or after 1 January 2024, and the threshold amount for the year starting 1 January 2026 is $10,700,000.

Congestion Levy and Absentee Owner Surcharges in Inner Melbourne

Investors in Melbourne's inner-east municipalities—covering parts of Boroondara, Stonnington, Yarra, and Port Phillip—also face the congestion levy, which applies to off-street car parking spaces in commercial and mixed-use properties. While most residential investors are unaffected, owners of apartment buildings with separately titled car parks or short-stay accommodation units (Airbnb, serviced apartments) may incur the levy if parking exceeds the residential exemption thresholds. The levy is $1,750 per space annually in the designated zone, rising to $3,500 for spaces in the CBD core. For 2026, the SRO’s rates are $3,030 (Category 1) and $2,150 (Category 2), and Category 2 expands from 1 January 2026.

Absentee owner surcharges—2% of a property's capital improved value—apply to residential land owned by individuals or entities that are foreign persons under the Duties Act and are not ordinarily resident in Australia. The surcharge is levied annually alongside land tax and is not offset by rental income. In Victoria, the absentee owner surcharge rate is 4% (and applies to the taxable value of land). Importantly, the surcharge applies even if the property is tenanted, distinguishing it from VRLT.

What Investors Must Do Before 15 February 2026

Four immediate actions are critical. First, audit all Victorian residential landholdings for vacancy status in the 2025 calendar year. If any property was vacant for more than six months, lodge the VRLT notification by 15 February 2026, attaching evidence of exemptions such as construction permits or occupancy/lease evidence. Second, review land tax exposure: calculate aggregate site values, estimate 2026 liabilities, and confirm that cash reserves cover both land tax and any VRLT penalties (land tax current rates; VRLT current rates). Third, for properties under construction or land-banked blocks, assess whether to accelerate development or sell. Delaying decisions risks compounding VRLT at 2% or 3% in subsequent years (progressive VRLT rates). Fourth, if planning to sell in 2026, adjust net sale price expectations to account for the vendor bearing full land tax, and ensure contracts drafted after 1 January 2026 reflect the prohibition on adjustment clauses. The prohibition applies to contracts entered into on or after 1 January 2024, with the 2026 threshold at $10.7 million.

How Buyer Advocates Navigate Tax-Aware Acquisitions in 2026

Sophisticated buyers now request due diligence on target properties' VRLT and land tax history before contracting, including whether the property may be caught by VRLT triggers such as a home being vacant for more than 6 months, a home being under construction/renovation or uninhabitable for 2 years or more, or metropolitan Melbourne land remaining undeveloped for a continuous period of 5 years or more (SRO VRLT notification triggers). For buyers, this can mean identifying properties where vendors are trying to reduce tax exposure before VRLT escalates under the progressive rate structure (VRLT current rates).

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