Windfall gains tax – be prepared for rezoning

The Victorian Government’s new windfall gains tax will come into operation from 1 July 2023 and will apply to uplifts in land value which result from the rezoning of land under the Planning and Environment Act 1987 (Vic).  The landowner at the time of a relevant rezoning event – which, at a high level, is any amendment to a planning scheme in Victoria that causes land to fall in a different zone (WGT Event) - is liable to the tax which will operate as a first charge on land.

When is the tax imposed?

Windfall gains tax applies to the difference in the capital improved value of land before and after a WGT Event (as determined by the Valuer-General Victoria), less any applicable deductions.  No tax is payable where the capital improved value increases by less than $100,000 following a rezoning.  After this, windfall gains tax is payable at a rate of 62.5% on the part of the taxable value uplift between $100,001 to $499,999 and a flat rate of 50% where the taxable value uplift is more than $500,000.

The owner of land that is subject to rezoning is responsible for paying the WGT.

Members of a group, such as related corporations and related trusts, will be assessed on the aggregate taxable value uplift of all land owned by the members which is rezoned during a WGT Event.  Joint owners of land will be jointly assessed as if the land was owned by a single person. 

Where land is subdivided, the tax is apportioned by reference to the size of each lot.

When does the tax have to be paid?

When issued with an assessment for windfall gains tax, a landowner can elect to defer up to 100% of the tax until the first of the following events occurs:

• A dutiable transaction in relation to the land;
• A relevant acquisition in relation to the landowner; or
• 30 years have passed.

Once the deferral period ends, the landowner will have 30 days to pay the tax from that point.

Where an election to defer payment of the windfall gains tax has been made, interest will accrue on the deferral.  The interest amount will be calculated at the 10-year Treasury Corporation of Victoria bond rate.  As at 31 December 2022, this rate was 4.82%.  This can result in a very significant interest payment (particularly if the tax is deferred for the full 30-year maximum period following the rezoning event).

Are there any exemptions?

There are a number of exemptions, waivers and exclusions to windfall gains tax:

• Residential land exemption: An exemption applies where a WGT Event occurs in relation to land of less than 2 hectares that has a building affixed to it (either currently or that is in the process of being built) which was designed and constructed primarily for residential purposes. In order to qualify for the exemption, the relevant land need not be the landholder’s place of residence.  The exemption can apply to investment properties and secondary homes.  Vacant land is not eligible for the exemption.  For residential land exceeding 2 hectares, only the first 2 hectares can be exempt from windfall gains tax.
• Transitional exemption: An exemption is available for certain land upon which an owner-initiated rezoning was underway before 15 May 2021 or where the land is subject to a contract of sale that was entered into before 15 May 2021 and that had not settled before the WGT Event occurs.
• Urban Growth Zone exemption: Rezonings to and from the Urban Growth Zone within the Growth Areas Infrastructure Contribution area are exempt from windfall gains tax.
• Charitable land waiver: This applies to land that is used and occupied by a charity for charitable purposes. To be eligible for the waiver, a charity must continue to use the land for charitable purposes for 15 years after the WGT Event occurs.
• Specific exclusions: There are specific exclusions for land rezoned to public land zones and Rural Zones (other than the Rural Living Zone) or where rezoning occurs to correct an error in the Victoria Planning Provisions or a planning scheme.