The congestion levy is an often overlooked but critical issue in Victorian property transactions, particularly for properties located in inner Melbourne. Failure to properly identify and disclose this levy may result in significant legal consequences, including a purchaser’s right to terminate the contract.
What is the Congestion Levy?
The congestion levy is an annual tax imposed under the Congestion Levy Act 2005 (Vic). It applies to certain off-street parking spaces located within designated inner areas of Melbourne.
From 1 January 2026, both the levy rates and the applicable areas have increased, making it essential to determine whether a property is affected.
Where Does the Levy Apply?
The levy applies to two categories of inner Melbourne areas:
- Category 1 levy area
- Category 2 levy area
Each category has different rates and boundaries, which must be confirmed using the State Revenue Office Victoria (SRO) congestion levy map:
Category 1 Area (Higher Levy)
The Category 1 area covers the core CBD and central Melbourne locations, where congestion is highest.
It includes areas within:
- City of Melbourne
- City of Port Phillip
- City of Yarra
Generally bounded by:
- Hoddle Street / Punt Road
- Queens Road / Kings Way
- West Gate Freeway / CityLink
- Footscray Road and surrounding CBD streets
Category 2 Area (Lower Levy)
The Category 2 area covers a broader ring of inner suburbs surrounding the CBD.
It includes areas within:
- Darebin, Melbourne, Merri-bek
- Port Phillip, Stonnington, Yarra
Extending towards:
- Dandenong Road
- Nepean Highway / Port Phillip Bay
- Yarra River / Maribyrnong River
- Inner northern, southern and eastern suburbs
2026 Expansion (Category 2)
From 1 January 2026, the Category 2 area has been expanded to include additional parts of Yarra and Stonnington
What Are the Current Rates?
For the 2026 calendar year:
- Category 1: $3,030 per parking space
- Category 2: $2,150 per parking space
The levy is calculated based on the number of parking spaces used in the previous calendar year.
What Counts as a “Parking Space”?
The definition of a parking space is broad and includes:
- Clearly marked parking bays
- Unmarked areas used for parking
- Any land set aside for vehicle parking
Even where spaces are not formally marked, they may still be counted using statutory area-based calculations.
Are Any Parking Spaces Exempt?
Certain parking spaces are exempt, including:
- Residential parking used exclusively for living purposes
- Disabled parking spaces
- Visitor or service-related parking (in limited circumstances)
- Parking provided by public or charitable institutions (if free of charge)
Exemptions are strictly interpreted and subject to audit by the SRO.
Who is Liable?
The owner of the parking space is generally responsible for the levy. In some circumstances, operators of public car parks may also share liability (exceptions may apply).
Key Risk: Section 32 Disclosure
For vendors, the most critical issue is getting the disclosure right.
If a property is affected by the congestion levy, the annual amount must be clearly disclosed in the Section 32 Vendor Statement.
Failure to do so can have serious consequences:
- The purchaser may have a right to terminate the contract prior to settlement
- This can occur even late in the transaction, creating significant disruption and financial risk
- The vendor may be exposed to delays, renegotiation, or loss of the sale altogether
Why This Is Often Missed
In our experience, congestion levy issues are commonly overlooked because:
- There is no standard SRO certificate confirming whether the levy applies
- Liability depends on the actual use of parking spaces, which is not always obvious
- Unmarked or informal parking areas may still be captured under the legislation
- Vendors are often unaware they are liable, particularly in smaller properties
As a result, the levy can be missed during the preparation of the Vendor Statement.
What Should Vendors Do?
To minimise risk, vendors should:
- Carefully review whether any part of the land is used for vehicle parking
- Locate and provide the latest SRO congestion levy assessment notice (if applicable)
- Seek legal advice early if there is any uncertainty
Early identification allows the levy to be properly disclosed and managed upfront, rather than becoming an issue during the transaction.
What Should Purchasers Look For?
Purchasers should not assume the levy does not apply.
As part of due diligence, purchasers should:
- Confirm whether the property is located within a Category 1 or Category 2 levy area
- Check whether the Section 32 includes any congestion levy disclosure
- Make further enquiries where the property includes car parking or open areas capable of being used for parking
The congestion levy is a relatively technical issue, but the consequences of getting it wrong are not.
From a legal and commercial perspective, it should be treated as a key due diligence item in any transaction involving inner Melbourne property with parking.
Please note that this information is general in nature and does not constitute legal advice. If you have any specific questions, you should seek independent legal advice.
