Windfall Gains Tax

Windfall Gains Tax – Fact Sheet

By Julie Barkla, Wisewould Mahony Lawyers

Developers and others purchasing property with the hope of future rezoning and development need to beware of the implications of the new Windfall Gains Tax.

The Windfall Gains Tax and State Taxation and Other Acts Further Amendment Act 2021 (Vic) (the WGT Act) introduces a new windfall gains tax (WGT) on the increase in the value of land resulting from a rezoning.  The WGT will apply to land that is rezoned on or after 1 July 2023.  Rezoning means an amendment of a planning scheme that causes land to be in a different zone from the zone that it was in immediately before the amendment.

The WGT applies where the taxable value uplift of all land owned by an owner or group resulting from the same planning scheme amendment (rezoning) exceeds $100,000.  For taxable value uplifts between $100,000 and $500,000, the tax is calculated at the rate of 62.5% on the uplift in excess of $100,000.  For taxable value uplifts exceeding $500,000, the tax is calculated at the rate of 50% on the whole uplift.

A liability will arise when a ‘WGT event’ occurs, being when a land rezoning takes effect.  The tax liability will rest with the owner of the land at the time the WGT event occurs.  A first ranking charge will apply to the land until the WGT is paid.

Payment of up to 100% of the WGT may be deferred until the earlier of a dutiable dealing in respect of the land or the landholder (eg a sale of the land), or 30 years. Interest will accrue against deferred amounts at a rate defined by reference to the 10-year yield on Treasury Corporation of Victoria bonds. To seek a payment deferral, an election must be made to the Commissioner prior to the date on which the WGT would have otherwise been payable.

By way of example, if land valued at $1,000,000 in a Green Wedge Zone, which zoning has very little development potential, is rezoned to a Residential Zone on or after 1 July 2023, and the value of that land increases to $10,000,000 as a result, the WGT would theoretically be the amount of $4,500,000 (namely half of the $9,000,000 increase in value consequent upon the rezoning).

There are some limited exemptions for some Victorian land and some types of rezonings.  The main exemption is for residential land (as defined in the WGT Act) of up to two hectares.  The land must have a residential building or a building permit to build a residence must be in place. It must also be the only residential land owned by the taxpayer that is rezoned by the WGT event.

Rezonings to which the WGT does not apply include:

  • a rezoning between schedules in the same zone; or
  • a rezoning that causes land to be brought within the contribution area (usually land in an Urban Growth Zone) which is subject to the Growth Areas Infrastructure Contribution; or
  • the first rezoning after 1 July 2023 of land that was in the contribution area immediately before that date; or
  • a rezoning that causes land that was not in a public land zone to be in a public land zone; or
  • a rezoning that causes land that was in a public land zone to be in a different public land zone; or
  • a rezoning that causes land to be in a zone declared by the Victorian Treasurer to be an excluded zone; or
  • a rezoning of land that, immediately before the rezoning, was in a zone declared by the Treasurer to be excluded land.

Land owners need to act quickly where a liability for WGT arises, as there is a strict 60 day time limit to object to an assessment for WGT.

The Windfall Gains Tax and State Taxation and Other Acts Further Amendment Act 2021 (Vic) also introduced build-to-rent (BTR) land tax concessions and absentee owner surcharge concessions.