For sale contracts below the $10.7 million adjustment prohibition threshold, sellers cannot require buyers to contribute to land tax at settlement. The seller absorbs all land tax costs incurred up to the settlement date. Land tax remains an annual progressive charge based on the property’s unimproved capital value.
Selling mid-year in 2026 means the vendor is responsible for land tax liabilities up to the date of settlement, provided the sale price is below the $10.7 million threshold. This lack of cost-sharing at settlement is a primary consideration for those exiting investment-heavy submarkets in Melbourne’s eastern suburbs.
Land tax adjustment at settlement
The 2026 land tax adjustment prohibition threshold is $10.7 million. For contracts below this amount, sellers are prohibited from requiring buyers to contribute to land tax at settlement. Consequently, the seller absorbs the full land tax liability up to the settlement date.
Vacant Residential Land Tax (VRLT) implications
Residential land vacant for more than six months in a calendar year attracts a penalty of 1% of the capital improved value (CIV) in year one, rising to 3% by year three. From 1 January 2026, this also applies to eligible metropolitan Melbourne land that has remained undeveloped for five or more continuous years.
The inner-city congestion levy
Investors in Boroondara, Stonnington, Yarra, and Port Phillip face specific levies on off-street parking spaces. For 2026, the rates are $3,030 for Category 1 and $2,150 for Category 2, with the Category 2 zone expanding on 1 January 2026 to include Richmond, South Yarra, Windsor, and Cremorne.
The yield compression risk
Net rental yields for inner-city investors have been materially compressed (Forge Property, February 2026). This compression makes it difficult to determine the precise point where the cumulative cost of holding the asset outweighs the potential for further capital gains.
Frequently asked questions
Can I ask the buyer to pay a portion of the land tax?
If the sale contract is below $10.7 million, you cannot. Sellers are prohibited from requiring buyers to contribute to land tax at settlement for properties under this threshold. The seller must absorb all land tax costs incurred up to the date of settlement.
How does the Vacant Residential Land Tax work in 2026?
VRLT applies to residential land vacant for over six months a year or metro Melbourne land undeveloped for five-plus years. Costs are progressive: 1% of CIV in year one, 2% in year two, and 3% from year three onwards. Notification must be lodged by 15 February annually.
Which inner-Melbourne areas are affected by the congestion levy?
The levy applies to off-street car parking in Boroondara, Stonnington, Yarra, and Port Phillip. From 1 January 2026, the Category 2 zone expanded to include Richmond, South Yarra, Windsor, and Cremorne, with rates for 2026 set at $3,030 for Category 1 and $2,150 for Category 2.
When is the best time to sign a contract for CGT purposes?
The Capital Gains Tax (CGT) event is triggered on the contract signing date, not the settlement date. To minimise the effective tax rate, investors may choose to sign in a low-income year, such as during retirement or maternity leave, or use existing capital losses to offset the gain.
Questions to ask your agent
- How is the land tax adjustment prohibition affecting buyer appetite in my specific street or pocket?
- Are you seeing more owner-occupier interest in this submarket due to investor divestment?
- Based on recent comparable sales, does the current price growth offset the cumulative impact of the 2026 tax increases?
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.