Last reviewed: May 2026 · Financial year: 2025–26 · Authority: Cross-referenced against ATO Rental Properties Guide 2025 (NAT 1729), SRO Victoria published rates and rulings, current draft TR 2025/D1, and the 2026–27 Victorian Budget Papers (5 May 2026).

TL;DR for Victorian investors in 2025–26:
- VIC land tax kicks in at just $50,000 — the lowest threshold in Australia (down from $300,000 in 2024). Virtually every Victorian investment property pays land tax now.
- Trust threshold is $25,000 with an additional 0.375% surcharge.
- COVID Debt Levy is baked into the rates through to 30 June 2033 — confirmed unchanged in the 2026–27 Budget.
- Vacant Residential Land Tax (VRLT) applies state-wide from 1 January 2025 to residential land vacant for more than 6 months. Charged at 1%/2%/3% of capital improved value (escalating each consecutive year).
- Absentee Owner Surcharge is 4% with no threshold — applied from the first dollar.
- Stamp duty has the highest top marginal rate in Australia at 6.5% above $2M. Foreign buyer surcharge is 8%.
- Negative gearing remains legal and unrestricted in 2025–26.
- The ATO is data-matching loan redraws against tax returns through to 2025–26.

Victoria has the most complex and most aggressive land tax regime in Australia. The state has used land tax as a major revenue tool through the COVID Debt Repayment Plan, the threshold reduction from $300,000 to $50,000 in 2024, and the introduction of state-wide Vacant Residential Land Tax. The headline result: the same property in Victoria can attract three or four separate state taxes (general land tax, COVID Debt Levy, VRLT, absentee surcharge) where it would attract only one in NSW or QLD.

This guide covers every legitimate deduction available to a Victorian property investor in 2025–26, the Victoria-specific rules that will eat into your return outcomes if you don't plan for them, and the four ATO compliance traps to avoid before lodging.

Why Victoria is different (and why this matters more than anywhere else)

The Victorian state tax landscape moves faster and hits harder than any other Australian jurisdiction. The things that actually matter:

Threshold cut from $300,000 to $50,000 (1 January 2024). This was the largest single tax change for property investors in any Australian state in a decade. Properties that were previously below the threshold are now squarely above it.

COVID Debt Levy until 30 June 2033. Built into the rate tables — additional fixed surcharges of $500 and $975 plus a 0.10 percentage point rate increase on higher brackets. The 2026–27 Budget (5 May 2026) confirmed no early end.

Vacant Residential Land Tax went state-wide on 1 January 2025. Was previously inner-Melbourne only. Now applies anywhere in Victoria — including holiday homes, second properties, and land held for development. Calculated on capital improved value (whole property value, not just land). Escalating: 1% year one, 2% year two, 3% year three of consecutive vacancy.

Trust threshold $25,000 + 0.375% surcharge. Trust-held land hits the surcharge from the first dollar above $25,000, on top of standard rates.

Absentee Owner Surcharge 4%, no threshold. Applies to "absentee" owners — including some Australian citizens who spend significant time overseas.

Land tax assessment date 31 December. Same as NSW.

Foreign Purchaser Additional Duty 8% on top of standard transfer duty.

Short-stay levy 7.5% on stays under 28 days (since 1 January 2025) — a real factor if you operate Airbnb/Stayz in Victoria.

These are the things that move the dial on a Victorian return. The federal deduction list is still the foundation, but the state-tax overlay is what makes Victorian investment property genuinely more complex than other states.

Part 1: Common deductions every Victorian investor can claim

Annual state tax stack

Why the same property costs ~6× more to hold in Victoria

A vacant residential investment with $700,000 land value in each state. Same property, same value, dramatically different annual state tax bill.

What this means

Victoria's overlapping tax stack hits hardest where a property is vacant. A holiday home left empty 6+ months in VIC attracts both general land tax and VRLT — totalling $8,950/year, vs $0 in NSW (under threshold) and $1,500 in QLD. Use the same property genuinely as long-term rental and VIC drops to ~$1,950, which is closer to QLD.

These deductions are governed by the Income Tax Assessment Act 1997 and the ATO's Rental Properties Guide 2025. The property must have been rented or genuinely available for rent during the period the expense was incurred.

1. Loan interest

Interest on the loan used to acquire your Victorian investment property is fully deductible — and is the largest deduction for most investors. Interest on loans for capital improvements is also deductible. Redraw for private purposes is the biggest trap (see Part 4).

2. Property management fees

Melbourne metro PM fees typically run 5.5–7.5%. Regional Victoria 7–9%. All recurring management fees, letting fees, advertising, and inspection charges are deductible.

3. Council rates

Local government rates from your Victorian council (City of Melbourne, City of Yarra, Stonnington, Boroondara, Geelong, Greater Bendigo, etc.) are fully deductible.

4. Water rates and usage

Yarra Valley Water, South East Water, Greater Western Water, and other Victorian water corporations issue bills with a service component (landlord) and usage (tenant) under most leases. Whatever the landlord pays is deductible.

5. Insurance premiums

Landlord, building, and contents insurance — all deductible. Premiums include stamp duty (paid to Victoria) and GST — both components are deductible.

6. Repairs and maintenance

Repairs that restore the property to its previous condition — without improving it — are immediately deductible. The repair vs improvement distinction is one of the four ATO compliance traps (Part 4).

7. Body corporate / strata fees (Owners Corporation in Victoria)

Victoria uses the term Owners Corporation rather than body corporate. Quarterly admin fund and maintenance fund contributions are immediately deductible. Special levies for ordinary maintenance are deductible. Special levies for capital improvements form part of your Division 43 base.

8. Land tax (and COVID Debt Levy and VRLT)

All three are deductible against rental income. Critical for Victorian investors because between them they can be the second-largest annual deduction after interest. We cover them in Part 2.

9. Advertising for tenants

Listings, professional photography, signboards, internal PM marketing fees — all deductible.

10. Legal expenses

Deductible: evicting tenants, recovering unpaid rent, lease preparation in some circumstances. Not deductible — but added to CGT cost base: conveyancing, title disputes.

11. Stationery, phone, internet (rental portion)

Costs related to managing the rental are deductible to the extent they relate to producing rental income.

12. Quantity surveyor fees

Fully deductible. We cover when to commission one in Part 3.

13. Tax agent fees (rental portion only)

Portion related to preparing the rental schedule is deductible.

14. Pest control

Routine pest control, termite inspections, and treatment between tenancies are deductible.

15. Cleaning and gardening

End-of-tenancy and routine cleaning, lawn mowing, gardening — all deductible.

16. Bank fees and loan costs

Loan establishment, valuation, and LMI are borrowing costs — deducted over 5 years or the loan term, whichever is less. Annual loan account fees and mortgage discharge expenses are immediately deductible.

17. Travel to property — heavily restricted

Non-deductible since 1 July 2017 for individual investors with residential property. Companies and trusts (other than excluded entities) are exempt.

18. Short-stay levy (paid by landlord, not tenant)

Since 1 January 2025, Victoria charges a 7.5% short-stay levy on stays under 28 days. The platform usually collects, but ultimately it's a cost on rental income. The portion of the levy you bear is deductible, and the income net of the levy is what you report.

Part 2: Victorian land tax — the most complex regime in Australia

Victorian investors face three potentially overlapping land taxes:

General land tax (with COVID Debt Levy baked in)
Vacant Residential Land Tax (VRLT)
Absentee Owner Surcharge

Plus a separate threshold/surcharge for trusts. Each has different assessment criteria and different bases.

2.1 General land tax

Levied by the State Revenue Office (SRO) annually, based on the site value (unimproved land value) at midnight 31 December.

2025–26 thresholds and rates (general — individuals and most companies)

The COVID Debt Levy is incorporated into these rates for the 2024–2033 land tax years.

Total taxable site value	Land tax payable (incl. COVID Debt Levy)
Up to $50,000	$0
$50,000 – $100,000	$500 flat
$100,001 – $300,000	$975 flat
$300,001 – $600,000	$1,350 + 0.3% of value above $300,000
$600,001 – $1,000,000	$2,250 + 0.6% of value above $600,000
$1,000,001 – $1,800,000	$4,650 + 0.9% of value above $1,000,000
$1,800,001 – $3,000,000	$11,850 + 1.65% of value above $1,800,000
$3,000,001 – $5,000,000	$31,650 + 2.65% of value above $3,000,000
Above $5,000,000 (with COVID component scaling)	calculated from base + percentage

Source: SRO Victoria published rates 2025–26.

Trust rates (lower threshold, higher rates)

Land held in a trust (other than fixed trusts and excluded trusts) faces:

$25,000 threshold (instead of $50,000)
0.375% surcharge in addition to the standard rates (introduced 2024)

This means a trust holding a $500,000 land value pays significantly more than an individual holding the same land value. Take advice on trust structuring before you transfer property — the stamp duty cost of moving property into a trust often outweighs the asset protection benefit when added to the higher annual land tax.

2.2 Absentee Owner Surcharge — 4%, no threshold

If you meet the SRO's definition of an absentee owner, an additional 4% surcharge applies on top of standard land tax. This is from the first dollar — there is no threshold. The surcharge applies whether you're an absentee individual, an absentee company, or an absentee trust.

"Absentee" includes Australian citizens who spend significant periods overseas. Diplomats, FIFO workers, and Australians on long international postings can inadvertently trigger absentee status. The deadline to update absentee status is 15 January each year.

2.3 Vacant Residential Land Tax (VRLT)

This is the rule that has changed Victorian property investing the most.

Scope: Applies to residential land that has been vacant for more than 6 months in the preceding calendar year. Since 1 January 2025, applies state-wide (was previously inner-Melbourne only).

Rate (escalating with consecutive vacant years):

Year 1: 1% of capital improved value (the total property value, including buildings)
Year 2: 2% of capital improved value
Year 3+: 3% of capital improved value

Critical: VRLT is calculated on capital improved value, not site value. A $700,000 vacant Melbourne investment property attracts $7,000 in VRLT in year one, rising to $21,000 in year three. This is in addition to general land tax.

Exemptions:

Holiday home occupied by the owner for at least 4 weeks per year (continuing exemption — confirmed in the 2026–27 Budget)
Properties undergoing genuine renovation under a planning permit
Newly constructed and awaiting first occupancy
Properties subject to a court order preventing occupation
Owner deceased (transitional period)

From 1 January 2026, the definition of "residential land" expands to include unimproved residential land in certain Melbourne metropolitan areas that has remained undeveloped for at least 5 years.

VRLT is self-notifying — you must notify the SRO if your property is vacant and meets the criteria. Failure to notify results in penalty tax. The SRO has flagged VRLT compliance as a 2026 enforcement priority.

2.4 When are Victorian land tax assessments issued?

The SRO issues general land tax assessments from late January through early March each year. VRLT assessments may be separate or combined.

2.5 Are these all deductible?

General land tax: yes, fully deductible against rental income
COVID Debt Levy (built into the general land tax): yes, deductible as part of the land tax
Absentee Owner Surcharge: yes, deductible
VRLT: deductibility is murkier. Where the property is genuinely held to produce rental income, VRLT incurred is generally treated as a holding cost and deductible. Where the property is held primarily for personal use (a holiday home where the exemption isn't met), VRLT may not be deductible. Take specific advice on this.

2.6 Common Victorian land tax mistakes

Aggregation surprise. All Victorian land you own is aggregated. Three apartments at $80,000 site value each = $240,000 aggregated, hitting the $975 flat fee bracket — not three separate $80,000 calculations.

Trust threshold trap. Moving an investment property into a discretionary trust to "split" it with a spouse loses you the $50,000 threshold, drops to $25,000, and adds 0.375% surcharge. Run the numbers before structuring.

VRLT silent trap. Inherited property left vacant for 8 months after probate triggers VRLT for the next year, and you'll only find out when the assessment arrives.

Absentee creep. A FIFO worker on the LNG projects in Papua New Guinea who spends 250 days a year overseas may trigger absentee status. Same for diplomats and Australians on multi-year corporate postings.

Part 3: Depreciation

Depreciation is federal — the same rules apply in every state.

Division 43 — Capital Works

Buildings constructed after 15 September 1987
2.5% per year of original construction cost
40 years from completion

Division 40 — Plant and Equipment

The May 2017 change still applies: individuals can't claim Division 40 on existing plant in second-hand residential properties acquired after 7:30pm AEST on 9 May 2017. Brand new properties: full claim. Second-hand: only on plant you install yourself. Companies are exempt; SMSFs and family trusts are not.

For Victorian investors, this rule has structurally tilted the market towards new and off-the-plan apartments — particularly in Melbourne CBD, Docklands, Southbank, and the inner suburbs. Always commission a depreciation schedule unless your property is pre-1987 with no significant renovations.

Part 4: The four ATO compliance traps to avoid in 2025–26

The ATO's data-matching program targets rental property returns through 2025–26. The SRO Victoria has its own compliance focus on VRLT, land tax, landholder duty, and leasehold transactions for the 2026 land tax year.

Trap 1: Loan redraws for private purposes

The biggest single source of ATO adjustments. Interest is deductible only on the portion of a loan used for income-producing purposes. A redraw for private purposes — holiday, car, school fees, your own home renovation — taints that portion permanently.

Example: $600,000 investment loan in 2022. Redraw $30,000 in 2025 for a kitchen reno on your own home. Loan is now $570,000 investment / $30,000 private. Only 95% of interest is deductible going forward.

ATO sees this through the bank data matching program. Discrepancies trigger nudge letters, audits, and amended assessments.

Trap 2: Repairs vs improvements

Repairs (immediate deduction): restore to previous condition — broken roof tiles, repainting, leaking taps, pest control.

Improvements (capital, claimed over 40 years): upgrade beyond previous condition — replacing kitchens, adding decks, replacing all carpets when only some were damaged, installing AC where there was none.

Initial repairs — fixing damage that existed at purchase — are not immediately deductible. They form part of the CGT cost base.

Trap 3: Genuinely available for rent

Particularly relevant for Victorian holiday homes (Phillip Island, Mornington Peninsula, Daylesford, Lorne, Mansfield) which intersect with VRLT obligations. PCG 2025/D7 specifically targets holiday homes also rented out. The ATO and the SRO can both look at the same property — and they coordinate.

Trap 4: Travel claims

Non-deductible since 1 July 2017 for individual investors. Eight years on, this remains a common ATO catch.

Part 5: Stamp duty in Victoria

Stamp duty (called land transfer duty) is a one-off cost paid at purchase, not an annual deduction. It forms part of the CGT cost base.

Standard rates 2025–26 (investment purchases)

Victoria has the highest top marginal rate in Australia — 6.5% on the value above $2,000,000.

For a typical investment purchase:

$500,000 property → ~$25,070 duty
$750,000 property → ~$40,070 duty
$1,000,000 property → ~$55,000 duty
$2,000,000 property → ~$110,000 duty

Foreign Purchaser Additional Duty (FPAD) — 8%

Foreign buyers pay an additional 8% surcharge on the dutiable value. A foreign buyer purchasing a $1M Melbourne property pays standard duty (~$55,000) plus 8% FPAD ($80,000) = ~$135,000 total.

When to pay

Land transfer duty is due within 30 days of settlement. Conveyancers handle this through Duties Online.

CGT cost base treatment

Do not claim stamp duty as an annual deduction. Record it as part of the CGT cost base alongside the purchase price, legal fees, building/pest inspection costs, and other acquisition costs.

Part 6: CGT considerations for Victorian investors

CGT is federal — same rules in every state.

The 50% CGT discount for individuals and trusts (not companies) on properties held for more than 12 months.

Cost base includes purchase price, stamp duty, legal/conveyancing fees, building/pest inspection, buyer's agent fees, capital improvements (less Division 43 already claimed), and selling costs.

Negative gearing remains legal and unrestricted in 2025–26.

A specific Victorian wrinkle: from 1 February 2026, the Victorian SRO's draft ruling DA-070 treats land tax amounts assumed by a buyer at settlement as dutiable consideration for transactions above $10.4 million (2025) — relevant for high-end commercial and industrial transactions.

Part 7: Record keeping that will survive an ATO and SRO review

Victorian investors face two compliance touchpoints — the ATO federally and the SRO at state level. Both can request records.

Keep:

Property manager statements
Bank statements showing rental income
Records of bond money retained
Short-stay platform income records (Airbnb, Stayz — reported directly to the ATO)
Every invoice and receipt
Photos before/after for repairs
Annual loan statements and redraw records
Full QS depreciation schedule
Receipts for new plant and equipment
Receipts for capital improvements
SRO Victoria land tax assessments (general, COVID Debt Levy, VRLT, absentee surcharge as applicable)
Stamp duty receipts (entire ownership period — CGT cost base)
VRLT self-notification records and any exemption documentation
Owners Corporation notices and minutes
Council rates notices

The reality of doing this in spreadsheets

Most investors try to manage this in spreadsheets, PDFs, and shoeboxes of receipts. With Victoria's overlapping tax regimes, the gaps and errors compound. The ATO's compliance focus and the SRO's separate VRLT enforcement assume you've kept clean records — if you haven't, the safe outcome is walking away from claims you could have made.

This is what Propperly is built to fix. Forward your council rates, water bills, rental statements, and SRO assessments to your dedicated Propperly inbox; we extract the data, categorise the expense to the correct ATO category, link it to your Victorian property, and have it ready when you (or your accountant) need to lodge.

Tracking your Victorian deductions automatically

Propperly's free Tax Centre helps you:

Capture every deductible expense as it happens
Categorise to the exact ATO category
Track Victorian land tax against the $50,000 threshold (and the $25,000 trust threshold)
Flag VRLT exposure proactively — before the SRO does
Load your depreciation schedule once
Generate a clean EOFY summary
Flag the four ATO compliance traps before they become a problem

Get started with Propperly's free Tax Centre →

Frequently asked questions

Why is Victoria's land tax threshold so much lower than other states?

The threshold was reduced from $300,000 to $50,000 from 1 January 2024 as part of the COVID Debt Repayment Plan. Other states maintained much higher thresholds.

Is the COVID Debt Levy ending soon?

No. Confirmed in the 2026–27 Budget (5 May 2026) as continuing to 30 June 2033. No early end announced.

Does VRLT apply to my Mornington Peninsula holiday home?

VRLT is state-wide from 1 January 2025. The holiday home exemption requires owner occupation of at least 4 weeks per year — confirmed in the 2026–27 Budget. Without that, VRLT applies.

What is VRLT calculated on?

Capital improved value — the total property value including buildings, not just land value. This makes it materially more expensive than general land tax.

Are general land tax, COVID Debt Levy, VRLT, and Absentee Owner Surcharge all deductible?

General land tax, COVID Debt Levy (built into the rates), and Absentee Owner Surcharge — yes, deductible against rental income. VRLT — generally deductible where the property is genuinely held for income production; murkier for personal use properties. Take advice.

What's the foreign purchaser duty in Victoria?

8% Foreign Purchaser Additional Duty on the dutiable value, in addition to standard land transfer duty.

Is the absentee surcharge really 4%?

Yes — and it has no threshold. It applies on the entire taxable land value from the first dollar.

Can my SMSF claim Division 40 on existing plant in a second-hand Victorian property?

No. SMSFs and family trusts are not exempt from the May 2017 change.

When is Victorian land tax assessed?

Midnight 31 December. Same as NSW.

What about the short-stay levy?

7.5% on stays under 28 days, since 1 January 2025. Platforms (Airbnb, Stayz) usually collect. The portion the landlord ultimately bears is deductible, and the income reported is net of the levy.

Is negative gearing still legal in 2025–26?

Yes. No changes to negative gearing for 2025–26.

Related resources

VIC Land Tax Calculator → VIC Stamp Duty Calculator → VRLT Estimator → (coming soon) CGT Calculator → Depreciation Estimator →

Other state guides:

Sources

ATO, Rental Properties Guide 2025 (NAT 1729)
ATO, draft TR 2025/D1, PCG 2025/D6, PCG 2025/D7
ATO, TR 2000/2 (deductibility of interest)
ATO, TR 2023/2 (effective life of depreciating assets)
SRO Victoria, published land tax rates and rulings 2025–26
SRO Victoria, published land transfer duty rates 2025–26
2026–27 Victorian Budget Paper No. 5 (Statement of Finances), 5 May 2026
Income Tax Assessment Act 1997
Land Tax Act 2005 (Vic)
Duties Act 2000 (Vic)
Treasury Laws Amendment (Housing Tax Integrity) Act 2017

General information only — not personal financial, taxation, or legal advice. Consult a registered tax agent for advice specific to your circumstances. Last reviewed: May 2026.

Investment Property Tax Deductions Victoria 2026 | Propperly