Vacant Residential Land Tax and Land Tax in 2026: What Every Melbourne Property Owner Must Know

Victorian property owners face three critical state tax changes in 2026: the Vacant Residential Land Tax (VRLT) applies to Victorian residential land that was not lived in for 6 months of the previous year and since 1 January 2025 operates at progressive rates, with notifications for 2025 vacancy due by 15 February 2026; land tax thresholds and rates affect owners once total taxable land holdings reach the $50,000 threshold (or $25,000 for trusts); and new levies—including the short-stay levy—add to holding costs. Owners generally cannot pass land tax to buyers in property sale contracts below the annual threshold amount ($10.7 million for 2026, indexed) (SRO explains the prohibition and indexation), and failing to notify the SRO of vacant residential land by the deadline may lead to penalty tax, making accurate classification and proactive vacancy management essential for Melbourne investors.

What Is the Vacant Residential Land Tax and Who Pays It?

The VRLT is an annual charge on residential properties that are vacant (not lived in) for 6 months of the previous year and applies across Victoria. The tax is based on the property’s capital improved value (CIV). The rate is 1% for the first consecutive year, 2% for the second, and 3% for three or more consecutive years. A Brunswick apartment valued at $600,000 left empty for eight months would incur a $6,000 VRLT charge in the first year, rising to $12,000 if it remains vacant the following year.

Properties are considered vacant unless they are actually lived in for at least 6 months by the owner (or permitted occupant) as their home, or by someone under a genuine lease or short-term letting arrangement. The 6 months do not have to be continuous, or by the same occupant, and it is not enough for the property to merely be “available” (for example, listed for rent or sale).

Exemptions exist in specific circumstances (including for some construction/renovation and other situations), but owners must follow the SRO process and criteria—see the VRLT exemptions list and the SRO note that you may need to notify even if you believe an exemption applies, by the annual deadline (for 2025 vacancy, 15 February 2026).

Melbourne investors holding properties off-market while deciding whether to sell, or leaving units empty between tenancies for extended periods, are at high risk. Claiming occupancy without supporting facts can lead to compliance action, and the SRO notes that failing to notify on time may result in penalty tax (with broader guidance on penalty tax and interest).

Land Tax 2026: Thresholds, Rates and Portfolio Impacts

Land tax applies to the total unimproved site value of all Victorian properties an owner holds, excluding land that is exempt (such as many principal place of residence situations—see the SRO’s PPR exemption guidance). The tax-free threshold is $50,000 for individuals and $25,000 for trusts. Above the threshold, land tax is calculated using the SRO’s current land tax rate schedule, with trusts and absentee owners potentially facing higher rates and surcharges (outlined on the same SRO rates page).

Land tax is paid by the owner of the land as at midnight on 31 December of the previous year, and the SRO states it does not adjust land tax for property bought, sold or settled during the assessment year (assessment explanation).

Owners cannot pass land tax to buyers in property sales contracts valued under $10.7 million. Previously, sellers could negotiate to shift the pro-rata land tax liability to the purchaser at settlement; this is now prohibited. Sellers remain responsible for the full annual land tax even if they sell mid-year, though they can claim a refund from the SRO for the period after settlement. This change affects sale pricing strategies, as sellers must factor the full land tax cost into their net proceeds rather than offsetting it against the buyer. The SRO explains the prohibition (including CPI indexation of the threshold) and that any such contract provision is void; it also states the owner as at 31 December remains responsible for the following year’s land tax. SRO also states it does not adjust land tax during the assessment year for property bought/sold/settled.

Short-Stay Levy and Other New Charges

Victoria's short-stay levy, introduced in 2025, charges owners 7.5% of gross rental income on properties rented as short-term accommodation (Airbnb, Stayz) for fewer than 183 days per year. A CBD apartment earning $30,000 annually from short-stay bookings incurs a $2,250 levy. Properties rented long-term or owner-occupied are exempt.

The short-stay levy is a flat 7.5% of total booking fees paid and applies to eligible short stays (less than 28 consecutive days). This levy targets investors using platforms to avoid traditional leasing obligations but creates a financial pinch for those caught between short-stay income and long-term vacancy risk. An owner earning $400 per night for 100 nights ($40,000 gross) pays $3,000 in short-stay levy, while also potentially facing VRLT if the property sits empty the remaining 265 days. Combined, these charges can eliminate profitability.

The congestion levy applies to certain off-street parking spaces in inner Melbourne. From the 2026 levy year, rates are Category 1: $3,030 and Category 2: $2,150 per space, and the SRO notes changes from 1 January 2026 include area expansion and updated rates.

Avoiding VRLT: Proactive Leasing and Vacancy Management

The most effective way to avoid VRLT is ensuring properties are lived in for at least six months per calendar year under the VRLT test (SRO definition of “vacant”). For investment properties, this means securing tenants quickly, setting competitive rents and minimising vacancy between leases. A property vacant from January to July (seven months) incurs VRLT; one vacant from December to May (six months) does not.

Owners who struggle to lease properties should reassess rent expectations. A Reservoir unit advertised at $500 per week that attracts no applications after four weeks may need adjustment to $470 to secure a tenant before crossing the six-month threshold. The $30-per-week reduction ($1,560 annually) is far cheaper than a $6,000 VRLT bill.

Properties undergoing major renovations qualify for exemption if works require vacant possession and are completed within two years. Owners must lodge evidence—building permits, contractor invoices, progress photos—with the SRO by 15 February. Minor cosmetic updates do not qualify; "major" means structural work, complete kitchen or bathroom replacements, or works requiring council approval. From 1 January 2026, the SRO states there is an exemption for land with a residence that was under construction/renovation or uninhabitable at any time during the previous year (with no minimum period), alongside other VRLT exemptions that have specific criteria. Owners should follow the SRO process and deadlines for notification and any exemption claim (notification guidance and deadlines).

Managing Multiple Properties and Tax Compliance

Investors with multiple Melbourne properties face higher administrative burden in 2026. Each property must be assessed individually for VRLT (based on prior-year occupancy), while land tax applies to the portfolio total based on site values. An owner with one occupied property and two vacant properties may pay land tax on all three plus VRLT on the two vacant ones, compounding costs.

For owners contemplating sales, timing matters. Selling before June 30 does not eliminate the full year's land tax liability, but it prevents the property from contributing to next year's assessment. A real estate agent experienced in investor sales can structure campaigns to align settlement dates with tax planning, ensuring owners understand net proceeds after all state levies and charges are deducted.

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.

📞 Phone: (03) 91003633

✉️ Email: info@forgeproperty.com.au

🌐 Website: www.forgerealestate.com.au

We offer specialized consultation and can assist in both Mandarin and Cantonese.