By Pinar Acay
The congestion levy is a land-based tax imposed on certain car parking spaces in inner Melbourne. Introduced to reduce traffic congestion and encourage the use of public transport, it can have significant financial implications for property owners, developers, and businesses. This article provides an overview of how the levy operates and what you should consider if you own or occupy land affected by it.
What is the Congestion Levy?
The congestion levy is imposed under the Congestion Levy Act 2005 (Vic) and applies to off-street parking spaces in designated areas of inner Melbourne.
The levy is charged annually on each liable parking space, regardless of whether the space is actually used. It is separate from council rates and other state taxes and is administered by the State Revenue Office (SRO).
Where Does the Levy Apply?
The levy applies to parking spaces located within specified areas of inner Melbourne, broadly including parts of the Melbourne CBD and surrounding inner suburbs such as Docklands, Southbank, and parts of St Kilda Road.
Whether a property is affected depends on its location within the declared levy area and its classification under the legislation.
What is a “Liable Parking Space”?
Not all car parks are subject to the levy. A “liable parking space” is generally an off-street parking space used for business or commercial purposes.
Examples may include office building car parks, commercial parking stations, and employee or tenant parking spaces. However, there are a number of exemptions, including residential parking spaces, small business premises below certain thresholds, and spaces used for specific purposes (e.g. emergency services or disabled parking, subject to criteria).
Determining whether a space is liable can be complex and depends on the use and classification of the land.
Who Pays the Levy?
The levy is generally payable by the owner of the land as at 1 January of the relevant year. However, in commercial leasing arrangements, the cost is often passed on to tenants, depending on the terms of the lease.
It is important for both landlords and tenants to review lease provisions carefully and understand whether the levy is recoverable as an outgoing.
Levy Rates and Categories
The amount payable depends on the location and category of the parking space. Broadly, the legislation distinguishes between:
- Category 1 levy areas (typically the CBD and highest congestion zones), and
- Category 2 levy areas (surrounding areas).
Rates are set annually and can be substantial when applied across multiple spaces. For the 2026 calendar year, the rates are as follows:
- Category 1 levy areas: $3,030 per parking space
- Category 2 levy areas: $2,150 per parking space.
Compliance and Reporting Obligations
Owners of liable parking spaces must register with the SRO (if required), lodge annual returns declaring the number of liable spaces, and pay the levy by the due date. Failure to comply can result in penalties, interest, and potential audits.
Key Risks and Considerations
- Incorrect classification: Misunderstanding whether spaces are liable can lead to underpayment and penalties.
- Lease disputes: Ambiguity in lease terms may result in disagreement over who bears the cost.
- Development planning: Developers should consider the levy when designing projects with parking components.
- Changing use of land: A change in how parking spaces are used may affect liability.
Early assessment can help avoid unexpected costs and disputes.
Practical Takeaways
- The congestion levy applies to certain off-street commercial parking spaces in inner Melbourne.
- Liability depends on location, use, and applicable exemptions.
- The landowner is primarily responsible, but costs may be recoverable under a lease.
- Ongoing compliance and accurate reporting are essential.
Need Advice?
If you own, lease, or are developing property within inner Melbourne, it is important to understand how the congestion levy may affect you. We assist Victorian clients with interpreting their obligations, reviewing lease arrangements, and managing compliance with state taxation requirements. Please contact Pinar Acay or Richard Mackenzie at either of our Melbourne or Essendon offices to discuss your circumstances and ensure you are meeting your obligations while managing your exposure effectively.
