Windfall Gains Tax on Rezoned land

Written By Kathleen Jess and Stephen Tsaketas

If you own land in Victoria that has recently been rezoned or have purchased land that you anticipate will be rezoned in the future, you may be liable to pay the new windfall gains tax (the WGT).  The WGT was established under the Windfall Gains Tax and State Taxation and Other Acts Further Amendment Act 2021 (Vic) and commenced on 1 July 2023.

What is the WGT?

The WGT is a tax on the value uplift of land caused by the rezoning of that land (the WGT event).  The value uplift is calculated as the difference between the capital improved value of the land prior to the WGT event and the capital improved value of the land after the WGT event.  For example, if land valued at $500,000 in an Industrial Zone is rezoned to a Residential Zone on or after 1 July 2023, and the value of that land increases to $5,000,000 as a result, the value uplift of the land will be $4,500,000.

When does the WGT apply?

The WGT applies when the value uplift of land that is rezoned exceeds $100,000, although it may be possible to defer payment.

Who is liable to pay the WGT?

The owner of rezoned land is liable to pay the WGT when the rezoning occurs, unless payment is deferred.

What is rezoning?

Rezoning refers to the amendment of a planning scheme that causes land to be in a different zone from the zone it was in immediately prior to the amendment.

Rezoning is not considered an WGT event, and therefore does not trigger WGT liability if the rezoning is considered “excluded rezoning”.  Excluded rezoning includes a rezoning between schedules in the same zone, rezoning that causes land that was not in a public land zone to be in a public land zone, and excluded zones as declared by the Treasurer.

What types of land are exempt from the WGT?

Various types of land are exempt from the WGT but the most common is residential land, which is not subject to the WGT if it does not exceed 2 hectares and is the only residential land owned by a taxpayer that is rezoned.

What is residential land?

Residential land is land that has a building designed and constructed primarily for residential purposes affixed to it that may lawfully be used as a place of residence. Residential land also includes land on which a residence is being constructed or renovated and before the commencement of the construction or renovation the land was capable of being lawfully used as a place of residence.

What is the rate of the WGT?

If the value of land increases by more than $100,00 but less than $500,000 the rate of the WGT is 62.5% of the increase in the value of the land that exceeds $100,000.

If the value of the land increases by more than $500,000, the rate of the WGT is 50% of the entire increase in the value of the land.

If the rezoned land is residential land (whether on one or more titles) that exceeds 2 hectares, the taxable value of the land is equal to the value uplift of the land multiplied by the percentage of the residential land that exceeds 2 hectares over the total area of the residential land.

How is land valued for WGT purposes?

The Commissioner must give the person liable to pay the WGT a notice of valuation that shows the capital improved value of the land.

Can you object to a WGT assessment?

Objections can be made against the capital improved value of land as well as against the imposition of the WGT itself.  However, where a liability for WGT arises there is a strict 60-day time limit to object to an assessment for WGT and the Commissioner of State Revenue has no discretion to extend this time limit.

Can the WGT be deferred?

The person who is liable to pay the WGT may elect to defer up to 100% of the tax until either 30 days after the sale or acquisition of the property, or up to 30 years after the rezoning occurred. Interest in respect of the deferred WGT will accrue at a rate calculated by reference to the 10-year yield on Treasury Corporation of Victoria bonds.

Can the WGT be passed on to purchasers of the land?

From 1 January 2024, the recovery of the WGT through option or contract of sale will be prohibited. This means that a vendor will not be able to recover any amount from a purchaser on account of an existing WGT liability in respect of the land.

Owners of land that is subject to rezoning or those considering purchasing land with the prospect that it may be rezoned in the future should contact Kathleen Jess on (03) 9612 7212 to discuss their obligations.