This follows the significant reforms introduced in 2025, and forms part of the Government’s broader strategy to boost housing supply and ease pressure on property prices and rents.
The VRLT is a state-based tax unique to Victoria, designed to encourage the development of underutilised land and increase housing supply. Introduced in 2018, the VRLT originally applied only to vacant residential land in inner and middle Melbourne, calculated on the capital improved value of the land at a rate of 1%.
Over time, the policy has evolved in response to growing concerns around housing affordability and land banking. The tax forms part of the Victorian Government’s broader strategy to address housing shortages by incentivising landowners to develop or sell idle land.
Recap: 2025 VRLT reforms
The State Taxation Acts and Other Acts Amendment Bill 2023 introduced several key changes to the VRLT regime, effective from 1 January 2025:
- Statewide application of VRLT to all vacant residential land in Victoria, including regional areas (with only minor exclusions in alpine regions);
- A progressive rate structure based on consecutive years of vacancy (1%, 2%, or 3% of the capital improved value);
- Expanded exemptions for holiday homes held in company or trust structures, subject to specific conditions.
These reforms laid the groundwork for the more targeted measures coming into effect in 2026.
2026: VRLT targets land banking in metro Melbourne
From 1 January 2026, VRLT will apply to unimproved land in metropolitan Melbourne that has remained undeveloped for at least five years (i.e. since 31 December 2020) and is capable of residential development. In previous VRLT assessment years, land was capable of being subject to VRLT where:
- It was capable of being used solely or primarily for residential purposes;
- There is a residence under construction or renovation for more than two years;
- There is an uninhabitable residence.
The expansion of the tax to undeveloped land marks a significant departure from the current definition of ‘vacant residential land’, which focuses on land that is already zoned and ready for residential use. The new rules are squarely aimed at developers and investors holding land without progressing development.
Whether VRLT applies will be determined by zoning under the relevant local planning scheme. Land currently used or under development for a non‑residential use (e.g. commercial or industrial use) should be excluded
Land that is intended to be solely or primarily used or developed for a non-residential use and there is an acceptable reason for the land not yet being used or developed in that way is excluded.
It is important to note that the Commissioner also has the power to determine that a change in ownership of land does not ‘restart’ the five-year period where a transfer of land occurred in order to reset the five-year period.
Exemptions and relief measures
The expanded VRLT will not apply to:
- Land in non-residential zones;
- Land under development for non-residential use;
- Land incapable of residential development.
Importantly, landowners may apply for an extension to the five-year threshold if there is an ‘acceptable reason’ for the delay – such as planning delays, infrastructure constraints, or financial hardship.
New exemption for contiguous holiday home land
A new exemption under section 88A(3A) of the Land Tax Act ensures that unimproved land contiguous to exempt holiday home land will also be exempt from VRLT. This protects landowners from unintended tax consequences where holiday homes are located on larger or subdivided parcels.
Next steps for landowners
With the 2026 changes targeting long-term undeveloped land, landowners in metropolitan Melbourne should:
- Review landholdings to identify any parcels that may fall within the new scope;
- Assess development plans or seek advice on eligibility for exemptions;
- Prepare supporting documentation for any extension applications due to acceptable delays.
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