How Victorian Tax Changes in 2026 Affect Property Holding Costs

Victorian property tax reforms implemented through November 2025 amendments introduce significant holding cost changes including Vacant Residential Land Tax (VRLT) expansion with modified exemptions and stricter compliance deadlines, congestion levy rate increases from 950 dollars to 1,850 dollars annually (95 percent rise) plus geographic expansion into South Yarra, Cremorne, Windsor, and parts of Richmond and Prahran, and Commercial and Industrial Property Tax (CIPT) clarifications affecting mixed-use properties and land tax transition rules. These changes create annual cost increases of 900-2,000 dollars for affected properties, requiring investors to reassess holding cost viability and buyers to verify tax exposure before purchase. Properties in newly designated congestion levy zones face particular impact—a South Yarra apartment with two parking spaces previously paying zero levy now incurs 3,700 dollars annually, substantially affecting net rental yields and investment returns.

Vacant Residential Land Tax Changes

VRLT applies to residential land vacant for more than six months in any calendar year, designed to encourage property utilization rather than land banking.

Exemption modifications: November 2025 amendments tightened exemptions while adding specific relief provisions. Properties undergoing substantial renovations maintain exemptions only with council-approved building permits and active construction—incomplete or delayed renovations lose exemption eligibility. Properties marketed for sale or rent within specified timeframes (listed within 30 days of vacancy commencement, maintained continuously) retain exemptions conditional on genuine marketing at market rates.

Compliance deadlines: Stricter reporting requirements now mandate vacancy status declarations by January 15 annually. Late declarations or inaccurate reporting trigger penalties of 500-2,000 dollars plus back-tax liability. Properties purchased mid-year must declare status for partial-year periods based on ownership duration.

Tax rates: VRLT applies at 1 percent of property's capital improved value for inner and middle Melbourne municipalities. A 900,000 dollar property incurs 9,000 dollar VRLT if vacant beyond exemption criteria—substantial cost incentivizing occupancy or sale.

Investment impact: Investors planning renovations, property sales, or tenant transitions must carefully manage timelines ensuring compliance with exemption criteria or facing significant tax liabilities. Properties between tenants exceeding six-month vacancy—common during extensive refurbishments—require active exemption management.

Congestion Levy Expansion and Rate Increases

Congestion levy applies per car parking space in designated Melbourne inner areas, funding transport infrastructure while discouraging car dependency in high-density zones.

Rate increase: Annual levy per parking space increased from 950 dollars (2024) to 1,850 dollars (2026)—95 percent rise creating significant holding cost jumps. Properties with two parking spaces now pay 3,700 dollars annually versus previous 1,900 dollars.

Geographic expansion: New levy zones include South Yarra (east of Chapel Street), Cremorne (industrial precinct), Windsor (north of Dandenong Road), and eastern Richmond and Prahran areas previously exempt. This expansion affects thousands of properties in high-amenity residential areas where parking was previously cost-neutral.

Property impact calculation: A South Yarra two-bedroom apartment with two parking spaces purchased for 850,000 dollars generating 42,500 dollars annual rent (5 percent gross yield) now pays 3,700 dollar congestion levy—reducing net yield by 0.44 percentage points. Combined with body corporate fees, rates, and other costs, this levy significantly impacts cash flow.

Investment strategy implications: Investors targeting high-yield properties should consider levy zones carefully. Properties in exempt areas (middle and outer suburbs) avoid this cost entirely, improving comparative returns. Alternatively, properties in levy zones without parking or with single spaces minimize levy impact.

Commercial and Industrial Property Tax Clarifications

CIPT reforms transition commercial and industrial properties from land tax to new property tax regime, with November 2025 amendments clarifying mixed-use property treatment and transition mechanics.

Mixed-use property rules: Properties with combined residential and commercial uses (ground-floor retail with upper residential apartments) now face clearer apportionment rules. Commercial portions attract CIPT while residential portions remain under standard land tax—requiring valuation splits and separate assessments.

Transition timeline: Properties gradually transition from land tax to CIPT over 2024-2028 period, with annual adjustments. Some properties experience increased costs during transition, others decreased, depending on land values versus capital improved values (CIPT bases on total property value including improvements).

Small business exemptions: Clarifications confirm small commercial property owners (under specified thresholds) retain certain exemptions minimizing CIPT impact on small operators versus large commercial portfolios.

Holding Cost Modeling and Investment Selection

These tax changes necessitate comprehensive holding cost analysis before property purchases or investment portfolio reviews.

Property-specific tax verification: Buyers must check specific properties for congestion levy applicability (parking space count, location within levy zones), VRLT risk (vacancy likelihood during renovations or tenant transitions), and CIPT exposure (any commercial or mixed-use elements).

Net yield recalculation: Investors must recalculate net yields incorporating new tax costs. Properties previously showing 3.5 percent net yields may drop to 3.0-3.2 percent post-tax increases—potentially making alternative investments more attractive.

Suburb selection strategy: Congestion levy zone expansion makes previously attractive inner suburbs (South Yarra, Cremorne) relatively less competitive versus nearby exempt areas offering similar amenity without levy costs.

Service Note

Forge Real Estate provides holding cost modeling incorporating Victorian tax changes including property-specific congestion levy verification, VRLT risk assessment based on vacancy likelihood and exemption criteria, and net yield calculations factoring all state taxes. Buyer advocacy services include contract review verifying tax exposures before purchase commitment, steering investment selection toward tax-optimized suburbs and property types, and compliance calendar integration ensuring exemption deadline adherence. Contact for tax-adjusted investment analysis and property selection across Melbourne markets.

Forge Real Estate Melbourne can help you blueprint your future by finding the perfect blue-chip property where your lifestyle needs and investment goals converge.

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✉️ Email: info@forgeproperty.com.au

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