Understanding the Changes to the Congestion Levy Regime
The Congestion Levy Act 2005 (Act) imposes an annual levy on off-street parking spaces located within designated inner areas of Melbourne.
From 1 January 2026, the rate of the congestion levy is increased and the area to which it applies has been expanded.
How much is the congestion levy?
For the 2026 calendar year, the levy payable depends on whether the parking space is located within a Category 1 or Category 2 Levy Area:
- For Category 1: $3,030 per parking space
- For Category 2: $2,150 per parking space
From 2027 onwards, levy rates will be indexed annually in line with the Consumer Price Index. [1]
How are levy areas categorised?
The State Revenue Office (SRO) provides a colour-coded map identifying Category 1 and Category 2 levy areas, available on their website here.
Recent changes include:
- Expansion of the Category 2 area to include:
- Burnley
- Cremorne
- South Yarra
- Windsor
- Parts of Richmond, Abbotsford and Prahran
- Reclassification of the area surrounding Queen Victoria Market from Category 1 to Category 2.
Who is liable to pay for the congestion levy?
Under section 9 of the Act, the owner of the parking space is liable for the levy.
However, under section 34, where a parking space is used by another person under an agreement (such as a lease, licence or management agreement), the user is obliged to reimburse the owner for the levy unless the agreement expressly provides otherwise.
Tenants may look in negotiation of lease terms to exclude liability for that reimbursement. Both tenants and landlords need to ensure the lease addresses that question.
Example:
Bob (the tenant) rents a warehouse from Ian from 1 January 2026 to 1 January 2027. There is a leviable car space associated with the lease. The lease is silent on who is responsible for payment of the congestion levy. By operation of section 34, Bob is liable for the levy.
What if vehicles are parking on an area of land that has no clearly defined parking spaces?
Under section 5, where parking spaces are not individually marked, the number of spaces is calculated by dividing the total parking area by 25 m² per space, disregarding any remainder.
What parking spaces are exempt from the Act?
Under section 3, the definition of a ‘parking space’ does not include spaces used exclusively for the parking of a motor vehicle for residential purposes, including a temporary stay in a hotel, serviced apartment or club that provides accommodation.
Under Part 4 of the Act, certain areas are exempt from the congestion levy regime, for instance:
(a) S 17: Parking spaces for visitors and loading bays;
(b) S 18: Parking spaces owned by councils, charities etc.;
(c) S 18AA: Government schools;
(d) S 19: Parking for emergency vehicles;
(e) S 21: Disabled Parking;
(f) S 22: Parking for employees of 24/7 enterprises working night shifts.
This list is not exhaustive, and reference should be made to the Act to determine whether an exception applies to you.
Under sections 25 – 26A, certain areas may qualify for a concession:
(g) S 25: a parking space in a private car park that is not capable of being used or does not exist (e.g. can’t park there because of road works)
(h) S 26: same as s 25 but applies to parking spaces in a public car park
(i) S 26A: parking space in a category 2 levy area located on a retail premise or retail shopping centre
Registration requirements
Under Part 5 of the Act (see sections 27 & 28 in particular), the owner of a parking space in a leviable area must lodge a registration form with the SRO. For public car parks, the operator must register in addition to the owner.
This is a self-reporting regime and penalties will apply in respect of any non-compliance with the registration requirement.
Does this need to be disclosed in a Section 32 Vendor Statement?
Vendors must disclose the total annual congestion levy liability affecting their property.
This includes:
- Marked parking spaces; and
- Any unmarked areas used or set aside for parking (as determined under section 5).
Failure to disclose the congestion levy in the section 32 statement, may result in a purchaser terminating the contract of sale under section 32K of the Sale of Land Act 1962 (Vic).
Further note that a Vendor must notify the SRO of the change in ownership within 1 month after settlement is completed (section 30).
Conclusion
The 2026 changes of the congestion levy regime may have cost, leasing and disclosure implications for affected properties.
Owners, developers and tenants should review their current arrangements to ensure compliance and to appropriately allocate liability under relevant agreements.
Queries
Please contact the authors, or any member of our Property team, should you have any questions about this article, or if wish to discuss how we may be able to assist your business and/or projects.
Disclaimer
This information and the contents of this publication, current as at the date of publication, is general in nature to offer assistance to Cornwalls’ clients, prospective clients and stakeholders, and is for reference purposes only. It does not constitute legal or financial advice. If you are concerned about any topic covered, we recommend that you seek your own specific legal and financial advice before taking any action.
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[1] Changes to state taxes November 2025 | State Revenue Office