How Vacant Land Tax and New Levies Affect Melbourne Property Investors in 2026

Victorian property investors face multiple tax increases from 2026 including Vacant Residential Land Tax (VRLT) expansion applying 1 percent annual tax on property capital improved value when vacant over six months VRLT applies if land with an existing home was vacant for more than 6 months in the previous year, and rates are now progressive at 1% / 2% / 3% for consecutive years of liability, land tax rate and threshold changes, Short Stay Levy charging 7.5 percent of gross short-stay accommodation revenue statewide the levy is 7.5% of the total booking fee and applies from 1 January 2025, congestion levy rate increases from 950 to 1,850 dollars per parking space annually in designated inner Melbourne zones SRO’s published 2026 congestion levy rates are $3,030 (Category 1) and $2,150 (Category 2) per space, and the Emergency Services and Volunteers Fund (ESVF) (charged via council rates as a fixed charge plus a variable rate based on CIV). A Melbourne investor owning a 900,000 dollar vacant CBD apartment faces 9,000 dollar VRLT liability plus standard land tax first-year VRLT is 1% of CIV (with higher rates in later consecutive years), while the same property rented long-term avoids VRLT but pays increased land tax. Short-stay operators earning 40,000 dollars annually from Airbnb listings pay 3,000 dollar Short Stay Levy 7.5% of $40,000 = $3,000, potentially making long-term rental more economically attractive depending on yield comparisons.

Vacant Residential Land Tax Expansion

What triggers VRLT: Properties vacant for more than six months in any calendar year attract VRLT at 1 percent of capital improved value (land plus building value). Vacancy includes unoccupied properties not genuinely available for rent or sale, properties undergoing renovations without proper permits, and holiday homes used occasionally by owners. In Victoria, a property is “vacant” if it has not been lived in for 6 months of the previous year; being listed for rent or sale is not enough—it must actually be used.

Tax calculation: A 900,000 dollar apartment vacant seven months incurs 9,000 dollar VRLT. Unlike land tax calculated on land value only, VRLT uses total property value making it substantially more expensive for high-value properties. VRLT is calculated on capital improved value (CIV) and (from 2025) applies at progressive 1% / 2% / 3% rates for consecutive years of liability.

Exemptions that matter: Properties genuinely marketed for rent or sale at market rates within 30 days of vacancy avoid VRLT if continuously listed. Properties undergoing substantial renovations with valid building permits and active construction maintain exemptions. Properties occupied by owner or family for more than six months per year are exempt. Key VRLT exemptions include (among others) holiday homes, new owners, recent construction/renovation, and certain other defined circumstances.

2026 compliance changes: Investors must proactively declare vacancy status rather than waiting for State Revenue Office inquiries. VRLT notifications are generally due by 15 February each year, and late notifications can attract penalty tax.

Melbourne impact: CBD and Docklands apartments face particular VRLT risk during tenant turnover, renovation periods, or when owners delay re-letting. Properties vacant during 2026 while awaiting renovation approvals or tenant search exceeding six months trigger liability despite owner intentions to rent. From 1 January 2026, VRLT also applies to certain undeveloped residential-capable land in metropolitan Melbourne that has remained undeveloped for 5+ years.

General Land Tax Rate Increases

2026 rate structure: Land tax thresholds and rates increased substantially. Investment properties with combined land values above 300,000 dollars pay progressively higher rates. SRO summarises the land tax changes applying from the 2024 land tax year, including threshold and surcharge changes that affect many taxable holdings.

Multiple property accumulation: Investors owning multiple properties pay land tax on combined land values across all investment holdings. Three inner-city apartments with 600,000, 700,000, and 800,000 dollar land values (2.1 million combined) pay land tax on the full combined value—substantially more than each property assessed individually. Land tax is assessed on the total taxable value of landholdings, and the applicable rate schedule is published by SRO.

Principal residence exemption: Owner-occupied homes remain exempt from land tax regardless of value. Investors living in one property while renting others pay land tax only on investment property land values, not their residence.

Trust structures: Properties held in trusts face higher land tax rates with lower thresholds. Investors using trusts for asset protection should factor trust surcharge rates into cost-benefit analysis. SRO sets out different land tax treatment for companies and trusts, including trust surcharge settings and thresholds.

Short Stay Levy Introduction

7.5 percent revenue levy: All short-stay accommodation operators—Airbnb, Stayz, other platforms—pay 7.5 percent of gross revenue (total guest payments before expenses) as Short Stay Levy from 2026. A property generating 40,000 dollars annual short-stay income pays 3,000 dollar levy. In Victoria, the short stay levy is 7.5% of the total booking fee (including items like cleaning fees and GST) and applies from 1 January 2025.

Registration requirements: Operators must register properties with state short-stay registry, providing addresses, ownership details, and revenue reporting. Non-registration faces penalties and potential listing removal from platforms. Owners/tenants who accept bookings directly (without a platform) must register; platforms (e.g., Airbnb/Stayz/Booking.com) must also register and are responsible for collecting and lodging the levy on platform bookings.

Platform withholding: Major platforms like Airbnb automatically withhold and remit levy amounts on behalf of hosts. Operators using direct booking arrangements must self-assess and pay quarterly. SRO explains the levy is paid by the booking platform for platform bookings, and by the owner/tenant where bookings are accepted directly.

Yield comparison: Short-stay operators should calculate net returns after levy, cleaning costs, and higher vacancy versus long-term rental yielding consistent income with lower turnover costs. Many properties previously favoring short-stay now show better returns through long-term rental once all costs including levy are factored.

Congestion Levy Rate Increases and Zone Expansion

Rate doubling: Congestion levy per parking space increased from 950 dollars (2024) to 1,850 dollars (2026) annually—95 percent rise affecting all properties in designated zones. SRO’s published 2026 congestion levy rates are $3,030 (Category 1) and $2,150 (Category 2) per space.

Expanded zones: New levy areas include South Yarra east of Chapel Street, Cremorne industrial precinct, Windsor north of Dandenong Road, and eastern Richmond/Prahran areas previously exempt. The congestion levy applies within Category 1 (CBD) and Category 2 (inner Melbourne) boundaries shown on SRO’s official levy area maps.

Property impact: A South Yarra two-bedroom apartment with two parking spaces pays 3,700 dollars annual congestion levy on top of body corporate fees, council rates, and land tax. At SRO’s 2026 rates, two spaces would be $4,300 in Category 2 (or $6,060 in Category 1).

Investment strategy implications: Investors should consider levy-free suburbs offering similar amenity without congestion levy costs. Alternatively, properties in levy zones without parking or single spaces minimize levy burden.

Emergency Services Levy Increases

Emergency services levy: Property insurance emergency services levies increased in 2026 budget reflecting increased emergency service costs and insurance claims. Typical Melbourne investment apartments see levy rises annually. In Victoria, the Emergency Services and Volunteers Fund (ESVF) replaced the Fire Services Property Levy from 1 July 2025, and SRO publishes the fixed charge and variable rate schedule (based on CIV).

Combined with insurance: Property insurance premiums for investment properties already increased driven by construction costs and weather events. Combined with emergency services levy rises, total insurance costs for Melbourne investment properties increased over two years.

Holding Cost Comparison: Vacant Versus Rented

Vacant property annual costs (900k CBD apartment example):

• VRLT: 9,000 dollars first-year VRLT is 1% of CIV (higher if liable in consecutive years)
• Land tax: (depends on taxable site value and ownership structure) rates set by SRO

Rented property annual costs (same apartment at 450/week rent):

• VRLT: 0 dollars (exempt when rented) a property isn’t “vacant” if lived in under a genuine lease for 6+ months of the prior year
• Land tax: (depends on taxable site value and ownership structure) rates set by SRO

Vacancy creates a large negative swing compared to rented scenario once VRLT and foregone rent are considered.

Practical Strategies to Reduce Tax Exposure

Minimize vacancy periods: Professional property management securing quality tenants quickly reduces VRLT risk. Target maximum 4-6 week vacancy between tenants through proactive marketing, competitive pricing, and efficient application processing.

Strategic renovation timing: Plan major renovations during existing tenancies or secure building permits and commence work immediately upon vacancy to maintain exemptions. Delayed renovations without active progress lose exemption eligibility. SRO sets out how VRLT applies to properties under construction/renovation (including building-permit links and time thresholds) and the available exemptions.

Long-term versus short-stay analysis: Calculate net returns comparing short-stay gross income minus 7.5 percent levy, cleaning costs, and higher vacancy against long-term rental net income. Many CBD/Docklands properties now favor long-term rental despite lower gross income due to superior net returns. Short stay levy is 7.5% of the total booking fee for each short stay.

Portfolio land tax management: Consider consolidating multiple small properties into fewer larger holdings or investing in owner-occupied upgrades rather than expanding investment portfolios, as additional properties add disproportionately to combined land tax through progressive rates. Land tax is assessed on total taxable value and rates are progressive.

Suburb selection: Target levy-free suburbs avoiding congestion levy zones or properties within levy zones lacking parking. Middle-ring suburbs (15-25 kilometers CBD) offer strong rental yields without inner-city levy burdens.

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