As the year draws to a close, property owners in Victoria should review their obligations under the Vacant Residential Land Tax (VRLT) and prepare for significant changes coming into effect from 1 January 2026.

Existing Obligations for Improved Land

VRLT applies to residential land with a dwelling anywhere in Victoria if the property was vacant for more than six months during 2025.

Key points:

• Progressive rates based on consecutive years of vacancy:
• 1% of Capital Improved Value (CIV) – first year
• 2% – second consecutive year
• 3% – third consecutive year

Includes homes left unoccupied, homes under construction or renovation for more than two years, and homes uninhabitable for two years or more.

Please see the following link for our previous blog which includes further details on Improved Land legislation introduced last year.

New Rules from 1 January 2026: Unimproved Land

For the first time, VRLT will apply to undeveloped residential land in metropolitan Melbourne if:

• The land has remained undeveloped for five continuous years or more as at 31 December 2025.
• It is capable of residential development.
• Located within one of 31 metropolitan councils: Banyule, Bayside, Boroondara, Brimbank, Cardinia, Casey, Greater Dandenong, Darebin, Frankston, Glen Eira, Hobsons Bay, Hume, Kingston, Knox, Manningham, Maribyrnong, Maroondah, Melbourne, Melton, Merri-bek (formerly Moreland), Monash, Moonee Valley, Mornington Peninsula, Nillumbik, Port Phillip, Stonnington, Whitehorse, Whittlesea, Wyndham, Yarra and Yarra Ranges.
• Not in excluded zones (e.g., Farming, Industrial, Green Wedge) and not used for non-residential purposes.

Rate: A fixed 1% of CIV per year (no escalation).

Examples include vacant blocks, partially built but abandoned homes, and apartments with incomplete fit-outs never occupied.

Exemptions

• Land incapable of residential development (due to size, shape, or environmental condition).
• Land contiguous to a principal place of residence.
• Holiday homes and construction delays (subject to conditions).
• New exemption for land under construction or renovation at any time during the prior year.

Example

• The Paddock is a block of land in metropolitan Melbourne in a residential zone. Sam bought it as a vacant block in 2019 and it has remained undeveloped. It will be liable to VRLT at 1% of its CIV in 2026 because it is residential land that has remained undeveloped for more than 5 years as at 31 December 2025.
• If Sam sold the Paddock in September 2023 to Lin, the land would be liable for VRLT from 2028, assuming it was not developed or sold again before then.

Action Items for Landowners

• Review your property portfolio now.
• For improved land: confirm occupancy records for 2025.
• For unimproved land: check zoning, council area, and whether the land has been undeveloped since 2020.
• Seek advice early to avoid penalties.

Notifying the SRO

• Notify the State Revenue Office (SRO) by 15 February each year via the online portal. Please note prior to 2026, the notification deadline was 15 January.
• If land has been under construction, renovation, or uninhabitable for 2+ years, notify by email.
• Owners of undeveloped land in metropolitan Melbourne (undeveloped for 5+ years as at 31 Dec 2025) must notify via the portal by 15 February 2026.
• If a property is eligible for an exemption, you must still notify and apply via the portal.
• Failure to notify by 15 February is a notification default under the Taxation Administration Act 1997 and penalties may apply.
• Owners who miss the deadline should notify as soon as possible, late disclosures are treated more favourably than if identified during an investigation.
• If you have already made a notification, only submit a new one if your circumstances have changed.

Source – SRO VIC

Penalties for Non-Compliance

Failure to notify can result in penalty tax:

• 5% for voluntary disclosure before investigation.
• 20% after investigation commences.
• Up to 90% for intentional disregard.
• 50% for recklessness.

Need Help?

The expanded VRLT rules are complex and carry significant financial implications. Our expert advisors team can help you assess your VRLT exposure, apply for exemptions, and ensure timely compliance to avoid penalties.

Contact us today for tailored advice.

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