Vacant Residential Land Tax: What Australian Landlords Need to Know in 2026

This article is general information only and does not constitute financial or tax advice. Consult a qualified tax professional for advice specific to your situation.

If you own a block of land in Melbourne that you have been holding onto, waiting for the right time to build or develop, there is a new tax bill heading your way. From 1 January 2026, Victoria's vacant residential land tax (VRLT) expanded to include undeveloped residential land in metropolitan Melbourne. And the five-year lookback is retrospective, meaning some owners are already liable without realising it.

Most of the coverage from accounting firms focuses on developers and high-net-worth investors. But this change also affects ordinary landlords who own a vacant block alongside their rental properties, whether it is a future development site, a subdivided lot, or land inherited from a family member. Here is what you need to know in plain language.

What Changed in Victoria from 1 January 2026

Victoria has had a vacant residential land tax since 2018, originally targeting homes left empty in inner Melbourne. If a residential property was unoccupied for more than six months in the prior calendar year, you owed 1% of the capital improved value (CIV).

From 2026, the scope widened in two important ways.

First, VRLT now applies to all residential land across Victoria, not just the original 16 inner-city council areas. If you own a vacant home anywhere in the state, you are potentially caught.

Second, undeveloped residential land in metropolitan Melbourne is now subject to VRLT if it has remained undeveloped for a continuous period of five years or more and is capable of residential development. This covers 31 council areas from Banyule to Yarra Ranges, taking in essentially all of greater Melbourne.

"Undeveloped" means land with no residence on it, including partially built homes that have never been occupied. The definition also catches properties where construction started but was never completed.

The Retrospective Catch

This is the part that has surprised a lot of landowners. The five-year period does not start counting from 1 January 2026. It looks backwards. If you purchased or inherited a block of undeveloped residential land on or before 31 December 2020 and it remains undeveloped today, you are already past the five-year mark and liable for VRLT in 2026.

A landlord who bought a vacant block in 2018 as a future development site, held it through the pandemic, and is still waiting on permits could now face a VRLT bill they never planned for. The retrospective nature of this change is what makes it especially significant for self-managing landlords who might not be following legislative updates as closely as their accountant does.

How Much Does It Cost?

The tax is calculated on the property's capital improved value, which is the total value of the land plus any improvements (or in the case of vacant land, essentially the land value). There is no threshold and no COVID levy exemption.

For vacant homes, the rate escalates based on how many consecutive years the property has been liable:

• Year 1: 1% of CIV
• Year 2: 2% of CIV
• Year 3 and beyond: 3% of CIV

That escalation adds up fast. A vacant home valued at $800,000 would cost $8,000 in the first year, $16,000 in the second, and $24,000 from the third year onwards. Before 2025, the rate was a flat 1% for all years. The escalating structure is designed to push owners toward either occupying, renting, or selling vacant properties.

For undeveloped residential land in metro Melbourne, the rate is a flat 1% of CIV regardless of how many years it has been undeveloped.

These costs sit on top of any standard land tax you already pay on the property. They are separate assessments.

You Must Notify, Even If You Think You Are Exempt

Every owner of residential land in Victoria must lodge a VRLT notification with the State Revenue Office (SRO) by 15 February each year. This is not optional. You must notify even if you believe your property qualifies for an exemption.

Failure to notify can result in penalty tax. The SRO has made clear that non-notification creates both an immediate penalty exposure and increased scrutiny in future years. If you have already missed the February 2026 deadline, contact the SRO as soon as possible, as the commissioner can consider late notifications on a case-by-case basis.

If you lodged a notification in a prior year and nothing has changed, you do not need to re-notify. But if your circumstances shifted (you moved out, a tenant left, you started construction), you must update.

Exemptions That May Apply to You

Not every vacant or undeveloped property attracts VRLT. The key exemptions for landlords to know about include:

• Holiday homes used by the owner or close family (spouse, children, parents, siblings, grandparents, grandchildren) for at least four weeks per year in total. Your primary residence must be in Australia.
• Change of ownership during the relevant calendar year. If you bought the property in 2025, you are exempt from the 2026 VRLT assessment.
• Land that cannot be developed for residential use, whether due to physical constraints, planning restrictions, covenants, or environmental notices. This exemption is new from 2026.
• Contiguous land that sits next to your principal place of residence or holiday home, is owned by the same person, and enhances the enjoyment of that home. Also new from 2026.
• Land in an Urban Growth Zone (UGZ), which is excluded from the undeveloped land provisions entirely.

The commissioner also has discretion to extend the construction and undeveloped land timeframes where acceptable reasons exist. According to guidelines published in November 2025, acceptable reasons include indigenous cultural heritage findings, extreme weather damage, infrastructure connection issues beyond the owner's control, and prolonged planning approval delays. Notably, economic conditions, labour shortages, supply chain problems, and financing difficulties are not considered acceptable reasons for discretion.

How Does This Compare to Other States?

Victoria stands alone in having a dedicated vacant residential land tax. If you own property in NSW or Queensland, the treatment is different.

New South Wales does not have a separate vacant land tax. Vacant residential land is simply subject to standard land tax based on the unimproved land value. The general threshold in NSW is $1,075,000, with a rate of $100 plus 1.6% on the excess. There is no additional surcharge for leaving a property unoccupied, though foreign owners face a separate surcharge regardless of occupancy status.

Queensland also has no separate vacant land tax. Land tax applies to all land above the $600,000 threshold for individuals, whether vacant or developed, occupied or not. Queensland's land tax is based on unimproved land value and does not distinguish between a block with a house on it and a bare piece of dirt.

In practical terms, this means Victorian landlords face a unique compliance burden. If you own property across multiple states, you need to track the vacancy status of your Victorian holdings specifically, while your NSW and QLD properties are assessed under the standard land tax regime. Use the land tax calculator to estimate your standard land tax liability state by state.

What Should You Do Now?

If you own vacant or undeveloped residential land in Victoria, here is a practical checklist:

1. Check whether your land falls in metropolitan Melbourne. The 31 council areas are listed on the SRO website. If you are unsure, your rates notice will show the council.
2. Work out how long the land has been undeveloped. If you have held it since 31 December 2020 or earlier with no residence constructed, you are past the five-year threshold.
3. Lodge your VRLT notification. If you missed the 15 February 2026 deadline, contact the SRO promptly.
4. Check whether an exemption applies. Even if you qualify for an exemption, you still need to notify.
5. Record any VRLT paid as a deductible expense. Like standard land tax, VRLT paid on investment land is tax-deductible in the year you pay it. Log it against the property and keep the assessment notice attached.

If you are holding undeveloped land and genuinely working toward construction, gather your documentation (planning applications, correspondence with council, builder contracts) in case you need to apply for commissioner discretion.

The Bigger Picture for Your Portfolio

VRLT is one more holding cost that affects whether a property is making or losing money. For landlords already juggling mortgage interest, council rates, insurance, and maintenance costs, an unexpected VRLT bill on an undeveloped block can shift the numbers significantly. If you are weighing up whether to hold, develop, or sell vacant land, understanding this tax is essential to making that decision with real figures.

It is also worth reviewing the full picture of deductions you might be missing across your portfolio, because maximising your claims on properties that are earning rent can offset some of the cost of holding a vacant block.

propkt tracks every property expense in one place, including land tax and VRLT payments, so you can see exactly what each property costs you and what you can claim back at tax time. Start tracking for free with your first property.

Frequently Asked Questions

Do I have to pay vacant residential land tax in Victoria?

If your residential property was unoccupied for more than six months in the previous calendar year, or if you own undeveloped residential land in metro Melbourne that has been empty for five or more continuous years, you are liable for VRLT. You must notify the State Revenue Office by 15 February each year, even if you believe an exemption applies.

What is the VRLT rate in Victoria?

For vacant homes, the rate starts at 1% of the property's capital improved value in the first year, rises to 2% in the second consecutive year, and caps at 3% from the third year onwards. For undeveloped metro Melbourne land, the rate is a flat 1% of CIV.

Does NSW or Queensland have a vacant land tax?

Neither NSW nor Queensland has a separate vacant land tax like Victoria's VRLT. In both states, vacant land is subject to standard land tax based on the unimproved land value, with no additional surcharge for leaving it unoccupied.

Can I get an exemption from Victoria's vacant land tax?

Yes. Common exemptions include properties used as a holiday home for at least four weeks per year, properties that changed ownership during the relevant year, land that cannot physically or legally be developed for residential use, and undeveloped land that sits next to your principal place of residence. Commissioner discretion may also apply if genuine construction delays are beyond your control.

Is vacant residential land tax deductible on my tax return?

Yes. VRLT paid on an investment property is a tax-deductible expense in the year you pay it, just like standard land tax. Keep the assessment notice and payment confirmation for your records.