Major 2026 Reforms Extend The Vacant Residential Land Tax (VRLT) to Unimproved Land – What Victorian Landowners Must Do Now
Key points
- The Vacant Residential Land Tax (VRLT) is an annual tax designed to encourage the use of residential land for housing.
- Owners of residential land in Victoria must lodge a VRLT notification with the State Revenue Office (SRO) by 15 February 2026 if their property was vacant during 2025.
- From 1 January 2026, VRLT expands to apply to undeveloped residential land across metropolitan Melbourne.
- Owners seeking an exemption must apply for the exemption at the same time as lodging their notification.
- VRLT is separate from land tax and is payable in addition to ordinary land tax where both apply.
Background
VLRT is applied each year on land that is defined as both "residential" and "vacant" under the Land Tax Act 2005 (Vic). Owners must notify the SRO by 15 February 2026 if their property was vacant at any time during 2025.
Significant reforms were introduced in 2023, and commenced in 2026, expanding the definition of residential land, vacant land, and the scope of taxable land under the Land Tax Act 2005 (Vic). These changes introduce new obligations, broaden the categories of liable land, and reflect updated SRO guidance.
The most notable change is the extension of VRLT to include unimproved (undeveloped) residential land in metropolitan Melbourne that has remained undeveloped for at least five consecutive years. This five‑year period is retrospective.
These changes build on the 2025 statewide expansion of VRLT and form part of the Victorian Government’s broader strategy to discourage land banking and encourage development. This includes a progressive rate structure of 1%, 2% or 3% of capital improved value (CIV) depending on consecutive years of vacancy.
When is land considered "Residential"?
Under section 34B(1) of the Land Tax Act 2005 (Vic), land is considered residential land if it is capable of being used solely or primarily for residential purposes. The statutory test focuses on capability of use, rather than the actual or historical use of the land.
This means that even if land is not presently occupied or developed for residential living, it may still fall within the definition if the planning framework allows for residential use as the primary purpose.
Russell Kennedy can assist in determining the proper classification of land for VRLT purposes and ensuring that landowners meet their compliance obligations under the Act.
When is land considered "Vacant"?
A property is treated as vacant if:
- It was not actually lived in for more than six months during the previous year by the owner, their permitted occupant, or someone under a genuine lease or short‑term letting arrangement (being listed for sale or rent does not count); or
- It has been uninhabitable, under construction or undergoing substantial renovation for two or more years, measured from the date the building permit was issued.
What's changing in 2026?
Residential land was previously limited to land containing a dwelling. From 2026, undeveloped residential land in metropolitan Melbourne may be subject to VRLT even if no dwelling has ever existed.
Land will fall into this category if:
- It is 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;
- It is zoned for residential use;
- It is not being used or developed for a commercial purpose;
- It does not contain a dwelling, including one under construction or uninhabitable.
Key exemptions
Owners must still notify the SRO even if an exemption applies.
If a property is exempt from land tax, it is also exempt from VRLT.
In addition, specific VRLT exemptions apply to:
- Holiday homes;
- Properties that changed ownership in the previous year;
- Land that recently became residential land;
- Land incapable of residential development;
- Work accommodation;
- Undeveloped land adjoining your home or holiday home.
From 1 January 2026, land with a residence that is under construction/renovation or uninhabitable at any time in the previous year is also exempt.
Penalties for failing to notify
Under SRO Ruling TAA‑008v2, failure to lodge a required VRLT notification is considered a notification default. When a notification default occurs, penalty tax is imposed on the additional amount of VRLT that would have been assessed if the owner had met their notification obligations.
If you have missed a deadline in a previous year, you should notify the SRO promptly to help minimise penalties and interest.
What owners should do now
- Review how each Victorian property was used in 2025 and gather evidence such as utility bills, lease agreements or booking records.
- Assess any potential exemptions (e.g., principal place of residence, holiday home, construction/renovation, uninhabitable) and ensure you have the documents needed to support your claim.
- Consider cashflow impacts, noting that VRLT is based on CIV and applies in addition to land tax.
- Identify any landholdings that may fall into the new 2026 unimproved land category, especially if they have remained undeveloped for five years.
- Review development intentions and determine whether an exemption or an SRO discretionary extension may apply.
- Prepare evidence showing genuine attempts to develop the land or reasons for any delays.
- Lodge your VRLT notification and any exemption claims via the SRO portal by 15 February 2026.
How we can help
We can:
- Review your landholdings for VRLT exposure and available exemptions;
- Prepare and lodge VRLT notifications on your behalf;
- Lodge applications for exemptions or the Commissioner’s discretion;
- Document exemption evidence, such a holiday home use and development milestones, and
- Advise on the 2026 unimproved‑land rules and options to manage exposure.
If you are unsure whether VRLT or penalty tax may apply, we recommend seeking advice as soon as possible.
Please reach out if you need any assistance to James Lofting (JLofting@rk.com.au), Sonia Narduzzo (SNarduzzo@rk.com.au), Lauren Millington (LMillington@rk.com.au) or a member from Russell Kennedy's Planning and Environment Team.
Disclaimer
The information contained in this alert is intended as general commentary only and should not be regarded as legal advice. Should you require specific advice on the topics discussed, please contact the firm directly.
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