In short: Holding a Victorian investment property costs the loan interest plus land tax from a $50,000 land value threshold, council and water rates, landlord insurance, property management, maintenance and, for units, owners corporation fees. Vacant residential land tax applies if the property sits empty for more than six months in a year. Negative gearing at 2026–27 rates returns 32% to 47% of the annual shortfall depending on your marginal rate, so the net cost is lower than the gross, but never zero.
Key takeaways
- Victorian land tax starts at $500 on a total taxable land value of $50,000 and climbs through the brackets; it is assessed on all your Victorian investment land combined.
- Absentee owners pay an extra 4% surcharge on the land value, and vacant residential land tax applies state-wide to homes left empty.
- Interest is usually the largest cost by far; at 6.00% p.a. a $520,000 investment loan costs about $31,200 a year in interest.
- Expenses that exceed rent are deductible against your other income; at the 30% bracket plus Medicare that recovers 32 cents in the dollar, at 37% it recovers 39 cents.
- A property can be negatively geared and still worth holding, but only if you can carry the after-tax shortfall through a vacancy and a rate rise.
Victoria is the state where the holding-cost conversation matters most, because the land tax threshold is low and the surcharges are real. Investors from Reservoir to Werribee ask us to check their numbers before they buy, and the honest answer is always a full-year cash flow, not a rental yield. Here is how to build one.
The full list of annual holding costs
| Cost | Who charges it | Notes |
|---|---|---|
| Loan interest | Lender | Deductible; the largest line for most investors |
| Land tax | State Revenue Office | Annual, on total taxable land value, PPR exempt |
| Absentee owner surcharge | State Revenue Office | Additional 4% of land value for absentee owners |
| Vacant residential land tax | State Revenue Office | Applies if vacant more than six months in the prior year |
| Council rates | Local council | Includes waste charges |
| Water service charges | Water authority | Usage is normally passed to the tenant |
| Landlord insurance | Insurer | Building plus landlord cover for rent default and damage |
| Property management | Agent | A percentage of rent plus letting and lease renewal fees |
| Owners corporation fees | Owners corporation | Units and townhouses; special levies possible |
| Maintenance and repairs | Various | Budget a percentage of value each year |
| Depreciation | Quantity surveyor | Not a cash cost, but a deduction |
Every cash line above except the principal portion of your repayment is generally deductible. The ATO's rental property guide is the reference, and our investment property loans page covers the finance side.
Land tax: the Victorian difference
Land tax is assessed on the site value of all the Victorian land you own other than your principal place of residence. The 2024–2033 general rates are:
| Total taxable land value | Land tax |
|---|---|
| Under $50,000 | Nil |
| $50,000 to under $100,000 | $500 |
| $100,000 to under $300,000 | $975 |
| $300,000 to under $600,000 | $1,350 + 0.3% of value over $300,000 |
| $600,000 to under $1,000,000 | $2,250 + 0.6% of value over $600,000 |
| $1,000,000 to under $1,800,000 | $4,650 + 0.9% of value over $1,000,000 |
| $1,800,000 to under $3,000,000 | $11,850 + 1.65% of value over $1,800,000 |
| $3,000,000 and over | $31,650 + 2.65% of value over $3,000,000 |
Because the assessment is on your total holdings, a second investment property does not start at the bottom of the scale; it is added to the first. Two blocks with a site value of $350,000 each are assessed on $700,000, giving $2,850 a year rather than two lots of $1,500. The State Revenue Office issues assessments and our land tax Victoria calculator models your holdings.
Surcharges
- Absentee owner surcharge: 4% of the land value on top of general land tax for owners who are absentee individuals, corporations or trusts. On a $350,000 site value that is an extra $14,000 a year, which changes the investment case entirely.
- Vacant residential land tax: applies state-wide to residential land vacant for more than six months in the preceding calendar year, charged as a percentage of the property's capital improved value that escalates with consecutive years of vacancy. Our vacant residential land tax page explains the exemptions.
Foreign purchasers also pay an additional 8% duty at purchase; see our foreign purchaser additional duty page.
Worked example: a $650,000 house in Werribee
For illustration, an investor on a $120,000 salary buys an established house in Werribee for $650,000 with a $520,000 interest-only investment loan at 6.00% p.a. Site value is $350,000 and rent is $520 a week. Figures marked illustrative are placeholders for the reader's own quotes.
| Annual item | Amount |
|---|---|
| Rent received (50 weeks, allowing two weeks vacancy) | $26,000 |
| Loan interest | $31,200 |
| Land tax (site value $350,000) | $1,500 |
| Council rates and water service (illustrative) | $2,600 |
| Landlord insurance (illustrative) | $1,600 |
| Property management at 7% of rent plus letting fees (illustrative) | $2,400 |
| Maintenance (illustrative, about 0.5% of value) | $3,250 |
| Total cash expenses | $42,550 |
| Cash shortfall before tax | $16,550 |
| Add depreciation (illustrative) | $3,000 |
| Total deductible loss | $19,550 |
The investor's marginal rate at $120,000 is 30% plus the 2% Medicare levy, so the $19,550 loss reduces tax by about $6,256. The after-tax holding cost is roughly $10,294 a year, or about $198 a week. That is the real cost of this property, and the question is whether the expected capital growth justifies it. Run your own version in the investment property cashflow calculator.
The same property for a higher earner
At $160,000 of salary the marginal rate is 37% plus 2%, so the same loss returns about $7,625 and the after-tax cost falls to about $8,925. Negative gearing is worth more to higher earners, which is why the strategy skews that way. Our negative gearing guide and positive vs negative gearing page go deeper.
Stress-testing the hold
Before you commit, rerun the numbers with:
- A vacancy of six weeks rather than two. Rent falls to about $23,900 and the shortfall grows by $2,100.
- A rate 1 percentage point higher. Interest becomes $36,400 and the shortfall grows by $5,200.
- A special levy or major repair of $8,000 in one year.
- Principal and interest repayments once any interest-only period ends. At 6.00% p.a. over 30 years the repayment on $520,000 is $3,118 a month, roughly $6,200 a year more than interest-only.
If the after-tax shortfall in the worst case is more than you can comfortably carry from salary for a year, the property is too expensive for your position, regardless of how the yield looks on the listing.
Frequently asked questions
Is land tax deductible on an investment property?
Yes. Land tax on an income-producing property is a deductible expense in the year it is paid, along with council rates, insurance, management fees and interest. It is not deductible on your own home, but your own home is exempt from land tax in any case.
Can I avoid vacant residential land tax if the property is between tenants?
Ordinary vacancy between tenancies is fine, provided the property is genuinely available for rent and is occupied for more than six months in the year in total. The tax targets homes deliberately left empty. Holiday homes and properties used for work have specific exemptions, each with conditions.
Does negative gearing make an investment property free?
No. Negative gearing refunds part of the loss at your marginal rate. At 32% you still carry 68 cents of every dollar of shortfall. The strategy only makes sense if the after-tax cost is comfortably affordable and the property is likely to grow in value by more than the accumulated cost over the holding period.
Talk to GNT Finance
Gorakh Timilsina builds a full holding-cost model for every investment client before recommending a lender, including land tax on your existing holdings and a rate stress test. There is no cost to you for our home-loan service in most cases. Book a free consultation or call 0426 403 703.
This page is general information only and not legal, tax or financial advice. Laws change — confirm current rules with the State Revenue Office, the ATO or a licensed professional.
Written by Gorakh Timilsina
Founder, CEO & Senior Mortgage Consultant at GNT Finance. Gorakh started as a broker assistant, spent years as a senior credit officer assessing loan applications, and now helps Melbourne families get the right loan approved. English, Nepali and Hindi spoken.