Real net profit is calculated by subtracting Capital Gains Tax (CGT), land tax, and applicable Victorian levies from the final sale price. Key deductions include the congestion levy for inner-city holdings and the short-stay levy for Airbnb-style properties, while land tax is absorbed by the seller for contracts under the $10.7 million prohibition threshold.
Many investors are currently crystallising gains from properties purchased between 2017 and 2020 to exit a market with Australia’s heaviest property tax burden (SRO Victoria). We are seeing an increase in supply in investment-heavy submarkets as owners respond to compressed net rental yields and unsustainable negative cash flow.
Managing Capital Gains Tax (CGT)
Net profit depends heavily on the timing of the CGT event, which occurs on the contract signing date rather than settlement. Investors can reduce the effective tax rate by selling during low-income years, such as retirement or maternity leave, or by splitting gains between joint owners so each reports 50% at their own marginal rate.
Land tax and settlement adjustments
For most residential sales, the land tax adjustment prohibition threshold is $10.7 million (SRO Victoria). If the sale contract is below this amount, the seller cannot require the buyer to contribute to land tax at settlement, meaning the seller absorbs all land tax costs up to the settlement date.
Inner-city and short-stay levies
Owners in Boroondara, Stonnington, Yarra, and Port Phillip must deduct the congestion levy from their net profit, with 2026 rates at $3,030 for Category 1 and $2,150 for Category 2 areas. Additionally, those using platforms like Airbnb must account for the Short Stay Accommodation Levy, with fixed charges for non-PPR properties increasing from 1 July 2026 (SRO Victoria).
The net yield gap
The material compression of net rental yields for inner-city investors (Forge Property, February 2026) creates a discrepancy between the gross sale price and the actual financial benefit of the exit. This gap is widened by the cumulative effect of the VRLT expansion and the absentee owner surcharge.
Frequently asked questions
What is the land tax prohibition threshold in Victoria?
The 2026 land tax adjustment prohibition threshold is $10.7 million (SRO Victoria). For any sale contract below this value, sellers are prohibited from requesting that buyers contribute to land tax at settlement. Consequently, the seller must absorb the full land tax cost up to the settlement date.
How does the congestion levy affect my net profit?
If your investment property includes off-street parking in designated inner-Melbourne zones, including Boroondara and Stonnington, you must account for the congestion levy. 2026 rates are $3,030 for Category 1 and $2,150 for Category 2, directly reducing the final cash position upon sale.
When is the CGT event triggered during a sale?
The Capital Gains Tax event is triggered on the date the contract is signed, not the date of settlement. This is a critical distinction for investors attempting to defer settlement to a new financial year to manage their tax liabilities or marginal tax rates.
Why are so many investors selling in Melbourne in 2026?
Divestment is being driven by the cumulative effect of land tax rises, VRLT expansion, and the Short Stay Levy (SRO Victoria). Additionally, RBA rate rises between 2022 and 2023 pushed many negatively geared investors into unsustainable cash flow positions, prompting them to sell.
Questions to ask your agent
- How is the current increase in investment supply affecting the sale price of comparable properties in my specific corridor?
- Are you seeing owner-occupiers outbidding investors in this submarket, and how does that impact the likely sale price?
- Based on recent results, what is the current gap between offers from investors and those from owner-occupiers for properties like mine?
This article contains general market information based on data current as at April 2026. It does not constitute financial, legal, or real estate advice specific to your property or circumstances. For an appraisal and tailored advice, speak with a Fletchers agent in your area.