The Taxman Is Watching Empty Land

If you own a vacant block in metropolitan Melbourne, or a house that has sat half-renovated for years, the State Revenue Office may now be interested in you. From 1 January 2026, Victoria's Vacant Residential Land Tax (VRLT) reaches land that has been left undeveloped for five years or more, and the SRO has said it is focusing its compliance effort on exactly this area.

At Key Change Finance, we work with developers, investors and business owners who hold land for long periods, often while planning approvals, finance or the market catch up. Here is what the expanded tax actually covers, what it can cost, and what to check now so you are not caught out.

What Is Vacant Residential Land Tax and Who Pays It?

VRLT was introduced in 2018 to encourage owners of empty homes to make them available for sale or rent. For years it applied only to homes in inner and middle Melbourne that sat vacant for more than six months of a calendar year. Two rounds of change have since widened it considerably.

From 1 January 2025, the tax applied across Victoria and moved to progressive rates: 1 per cent of capital improved value (CIV) in the first year of liability, 2 per cent in the second and 3 per cent from the third consecutive year. It is based on CIV, which includes the value of any building on the land, rather than the site value used for general land tax. The SRO states there is no threshold, so a single property can be caught.

From 1 January 2026, the net widened again to capture land rather than just homes. Residential land in metropolitan Melbourne that is capable of residential development, sits in a zone other than a non-residential zone, and has been continuously undeveloped for five years or more can now attract VRLT.

How Much Could It Cost?

Because VRLT is calculated on capital improved value, the numbers can add up quickly. On a vacant metropolitan block with a CIV of $2 million, the flat 1 per cent rate for long-held undeveloped land would be $20,000 a year. For a vacant home that stays empty, the progressive rates mean the same $2 million CIV would cost $20,000 in the first year of liability, $40,000 in the second and $60,000 from the third consecutive year. These figures are illustrations only, and your own liability depends on your property's CIV and circumstances.

For a developer or investor holding land while approvals, funding or market conditions line up, that is a real holding cost, and it needs to sit inside the feasibility alongside interest, rates and general land tax. A project that stacked up when land could be held cheaply may look different once an annual charge applies.

Which Properties Are Most at Risk?

The new undeveloped-land rule is aimed at long-term landbanking, so vacant residential blocks in metropolitan Melbourne that have been idle since 2020 or earlier are the clearest example. The five-year test is retrospective in the sense that time before 2026 counts, so owners cannot assume the clock only started this year.

The uninhabitable and under-renovation rule can also catch investors. A residence outside inner and middle Melbourne that has been uninhabitable, or under construction or renovation, since 31 December 2023 or earlier may be liable for 2026. Partly built projects that stalled, renovations that dragged on and houses awaiting demolition are the types of situations worth reviewing.

Owners who claim the holiday home exemption through a company or trust should also take care. The SRO has said it is looking at claims that do not meet the criteria.

What Can You Do About It?

Start with the facts. Check the zoning, the council area, how long the land has been undeveloped and whether any exemption applies. Confirm whether you have lodged any required notifications for the current year. The 2026 notification dates have passed, and you should confirm the dates that apply for the next cycle directly with the State Revenue Office.

If you are holding land you intend to build on, the most direct way to manage the exposure is to commence development, since the tax targets land that stays undeveloped. That is where finance planning matters. Construction funding, staged drawdowns and the right loan structure can bring a project forward, and the cost of an annual tax can sometimes make an earlier start more sensible than a longer wait. If you are not planning to build, it is worth taking advice on whether selling, restructuring ownership or refinancing is a better use of the asset.

None of this replaces tax advice. VRLT has detailed exemptions and timing rules, so speak with your accountant or tax adviser before making decisions based on it.

Holding land used to be a patient person's game. With VRLT now reaching long-held undeveloped sites, the cost of waiting needs to be part of the plan from the start. If you own residential land or a stalled project in Melbourne and want to understand how funding could help move it forward, the team at Key Change Finance would be glad to talk it through, alongside your accountant.

Get in touch with us to review your holding costs and your finance options.

What is Vacant Residential Land Tax in Victoria?

Vacant Residential Land Tax (VRLT) is an annual Victorian tax charged on the capital improved value of certain vacant or under-used residential land. It applies statewide from 1 January 2025 at progressive rates of 1, 2 and 3 per cent of capital improved value for consecutive years of liability. From 1 January 2026 it also applies to undeveloped residential land in metropolitan Melbourne that has been undeveloped for five years or more.

Does VRLT apply to vacant blocks of land in Melbourne?

Yes, in many cases. From 1 January 2026, residential land in metropolitan Melbourne that is capable of residential development and has been continuously undeveloped for five years or more can attract VRLT at a flat 1 per cent of capital improved value. Land that cannot be used or developed for residential purposes, and certain land next to an owner's principal residence or holiday home, is exempt.

How is Vacant Residential Land Tax calculated?

VRLT is calculated on the capital improved value of the land, not the site value used for general land tax. For improved land, the rate is 1 per cent in the first year of liability, 2 per cent in the second and 3 per cent from the third consecutive year. Undeveloped metropolitan land is charged at a flat 1 per cent. The State Revenue Office states there is no tax-free threshold.

Can VRLT apply to a house that is being renovated?

It can. From 2026, VRLT may apply to residential land outside inner and middle Melbourne where the residence has been uninhabitable, or under construction or renovation, for more than two years. That includes properties that have been in that state since 31 December 2023 or earlier. Special rules and exemptions apply, so owners should check their circumstances with the State Revenue Office or a tax adviser.

What exemptions are available from Vacant Residential Land Tax?

Exemptions include land that cannot be used or developed for residential purposes, land contiguous to the owner's principal place of residence or holiday home where it is used for private benefit, and qualifying holiday homes, work accommodation and newly constructed residential land. Where a property is exempt from general land tax it is generally also exempt from VRLT. The criteria are specific, so confirm eligibility before relying on any exemption.

How can I reduce my exposure to VRLT on land I own?

The tax targets land that remains undeveloped or unoccupied, so the most direct way to reduce exposure is to progress development or make the property available for occupation. Owners should also review whether any exemption applies, make sure required notifications are lodged and speak with an accountant or tax adviser. Finance planning can help bring a development forward if holding the land is becoming expensive.