Tim Noonan
Contact West Carr & Harvey

Windfall Gains Tax to be introduced

What is Windfall Gains Tax?
Victorian Landowners whose land is rezoned from 1 July 2023 may be liable for a new Windfall Gains Tax (WGT).

What land will be included in the new tax?
Any land in Victoria that is rezoned may be subject to Windfall Gains Tax if the rezoning increased the land value by more than $100,000.

How much is the WGT?
The maximum tax payable is 50% of the uplift. The tax payable is calculated as follows:

Value uplift Windfall Gains Tax payable
$0 to $100,000 Nil
$100,001 to $499,999 62.5% of the total value uplift
$500,000 or more 50% of the total value uplift

The Windfall gains tax will be calculated based on valuations made on the pre-rezoning value and the post-rezoning capital improved value of land. The difference between the two represents the value uplift of the land.

The pre-rezoning value will be determined using the most recent annual general valuation as of 1 January. The post-rezoning value will be based on an additional valuation made after the new rezoning.

Is it possible to object to the valuation for WGT?
Landowners will be able to object to the pre and post-rezoning valuations when they receive their notice of assessment if they believe they are not reflective of the property value. Notice of an error or omission must be submitted to the Commissioner within 60 days from the date of issue of the notice of assessment.

Are there any rezonings which are excluded from WGT?
Some rezonings are excluded from WGT including:

  • a rezoning between schedules in the same zone
  • rezonings to and from the Urban Growth Zone within the Growth Areas Infrastructure Contribution (GAIC) area
  • the first rezoning after 1 July 2023 of land that was in the GAIC contribution area before that date
  • rezonings to Public Land Zones.

Are there any allowances for pre-existing scenarios?
Transitional arrangements will apply to the following:

  • some rezonings which were underway by the announcement date of 15 May 2021
  • rezonings of land which were subject to a pre-existing contract of sale or option arrangement entered into by 15 May 2021.

What land is exempt?
The following exemptions are available:

  • Up to 2 hectares of residential land (including primary production land with a residence) will receive an exemption from the windfall gains tax where it is rezoned by the same planning scheme amendment
  • Exemptions in relation to rezoning errors, an amendment to correct an obvious or technical error in the Victoria Planning Provisions or a planning scheme
  • Charities will not pay any windfall gains tax on land they own that has been rezoned, provided the land is used and occupied by a charity exclusively for charitable purposes for 15 years after the rezoning.

Who is liable to pay WGT?
The owner of the land that is subject to the rezoning pays WGT.

Joint owners
Where land is owned by multiple persons, the owners will be jointly assessed for WGT as if the land was owned by a single person.

Land held on trust
Where land is held on trust, the trustee will be assessed for the WGT in relation to all of the land subject to the trust.

Grouping provisions
All the land owned by members of a group that is rezoned will be assessed together for the purpose of WGT. This means that the grouping or aggregation provisions will be applicable so that the $100,000 threshold applies only once to properties owned by the same owner or group of owners.

When is the WGT payable and is there an option for deferral?
Owners of land liable to pay WGT will be issued with a WGT assessment with a due date for payment. The tax will be assessed at the date of rezoning.

Landowners will have the choice to defer payment until the next dutiable transaction (or relevant disposal) occurs, or until 30 years after the rezoning event, whichever occurs first.

Where a deferral arrangement is entered, the WGT liability will accrue interest over time. The interest rate is to apply at the Treasury Corporation of Victoria 10-year bond rate.

If you choose to only defer some of the tax, the part not deferred must be paid by the due date, otherwise the entire amount including the elected deferral amount will become due immediately.

Once you have reached the end of your deferral period, the tax along with the accrued interest must be paid within 30 days from the ceased deferral date.

Excluded dutiable transactions for triggering payment of WGT deferral include:

  • The acquisition of an economic entitlement in relation to the land
  • A transfer of an estate in fee simple in relation to the land
  • A no consideration dutiable transaction
  • A charitable land transaction.

Timeline of liability/payment deferral

Source: Windfall gains tax | Department of Treasury and Finance Victoria (dtf.vic.gov.au)

Next steps
If you believe you may be impacted by this tax, we suggest contacting us to discuss your best options for management and planning.

More information can be found here: Windfall Gains Tax and State Taxation and Other Acts Further Amendment Bill 2021 (legislation.vic.gov.au)