The new Windfall Gains Tax (WGT) was announced as part of the Victorian Budget 2021/22 and was introduced in Parliament this week through the Windfall Gains Tax and State Taxation and Other Acts Further Amendment Bill 2021. The tax is proposed to commence on 1 July 2023.
What is it
When land is rezoned to expand its permitted use, it can result in an increase in the value of land, which is known as a windfall gain.
The WGT will apply on the taxable value uplift in land value flowing from the rezoning of land. The taxable value uplift of land is the value uplift of the land less any deductions prescribed by the regulations.
The WGT will be administered by the Commissioner of State Revenue under the Taxation Administration Act 1997 (TAA) and will be payable by landowners. WGT liabilities will be included on property clearance certificates issued to purchasers under the TAA and will also need to be incorporated into vendor statements under section 32 of the Sale of Land Act 1962.
How it works
How it’s calculated and applied
The windfall gain will be calculated by the difference in the capital improved value of the land before and after the rezoning takes effect. The value before the rezoning will be taken from the most recent valuation in force for the land under the Valuation of Land Act 1960 (Capital Improved Value as shown on the most recent rates assessment). After the re-zoning, the value will be determined through a supplementary valuation certified by the Valuer-General Victoria.
The WGT will apply as follows:
|Uplift Value||WGT Payable|
|Uplift value of up to $100,000||Nil.|
|Uplift value of more than $100,000 but less than $500,000||62.5% of that part of the taxable value uplift that exceeds $100,000.|
|Uplift value of more than $500,000||Flat rate of 50% of the taxable value uplift.|
Grouping and aggregation provisions
Grouping and aggregation provisions will apply. This means that properties that are owned by the same owner or group of owners which are rezoned under the same planning scheme are assessed on the same threshold. These provisions will operate for related corporations and related trusts on similar terms to grouping for land tax purposes. This means:
- Members of a group will be assessed for WGT on the aggregated taxable value uplift of all land owned by members of the group that is rezoned by a WGT event.
- The WGT will be apportioned to land on each title in the same proportion as the proportion the taxable value uplift of that land bears to the aggregated taxable value uplift.
Exceptions and Waivers
- rezonings to or from the Urban Growth Zone within existing Growth Areas Infrastructure Contribution (GAIC) land;
- rezonings to (but not from) a public land zone;
- rezoning between zone subcategories;
- residential land not exceeding two hectares if the land is the only residential land owned by a taxpayer that is rezoned by a WGT event;
- rezonings to correct errors in the Victoria Planning Provisions or a planning scheme. Deferred or previously paid WGT will be reassessed or refunded as appropriate.
Charitable institutions will be eligible for a waiver of WGT if the relevant land remains owned and occupied by a charity exclusively for charitable purposes for 15 years after the rezoning.
For residential landholdings greater than two hectares, the taxable value uplift will be apportioned to the area of the total residential land that exceeds 2 hectares.
Rezonings that occur on land that is subject to a contract of sale entered into before 15 May 2021 where the contract has not been completed by a transfer before the WGT event occurred will not be subject to the tax.
Rezonings that occur on land where an option to enter into a contract of sale has been granted before 15 May 2021 will not be subject to the tax if the terms of the contract were settled at the time the option was granted, and either the option has not been exercised before the WGT event occurred, or the option has been exercised and the contract of sale has not been completed before the WGT event occurred.
Rezonings that have been requested by the owner of the land before 15 May 2021 that have well-progressed and have incurred significant costs will also not be subject to the tax.
Landowners will have the ability to defer payment of up to 100% of the tax for up to 30 years, or until the property is sold or transferred, whichever occurs first. However, interest is payable on the deferred payment.
The applicable interest rate will be the 10-year Victorian Government bond rate applying from time to time.
Liability limited by a scheme approved under Professional Standards Legislation
This article published by Danaher Moulton is for general information purposes only. This should not be relied on as specific advice. You should seek your own legal and other advice for any question, or for any specific situation or proposal, before making any final decision.