Getting in the Zone - Windfall Gains Tax
Tax Law: 11 July 2023
Author: Lauren Woolley - Our People
From 1 July 2023, Windfall Gains Tax (‘WGT’) will be applied to properties rezoned in Victoria.
The Windfall Gains Tax and State Taxation and Other Acts Further Amendment Act 2021 was introduced to capture any “value uplift” when the planning zone of a property is changed. The “value uplift” is the difference between the value of the land after rezoning and the value of the land prior to the rezoning.
WGT will only apply to a value uplift that is more than $100,000. The current applicable tax rates are as follows:
| Uplift Amount | Tax Percentage |
|---|---|
| <$100,000: | 0% |
| $100,000 - <$500,000: | 62.5% of uplift above $100,000 |
| $500,000 and over: | 50% of total uplift |
How is the uplift calculated?
The WGT will be based on two valuations of the capital improved value of the land undertaken by the Valuer-General Victoria. The first valuation will be of the pre-rezoning value, as at 1 January of the relevant year. The second is the post-rezoning valuation which will take the new planning zone into account and will also be valued as at 1 January of the same year. The property is valued from the same date to ensure any difference in value is only due to the rezoning and not any other potential growth in land value.
What is rezoning?
Rezoning for the purpose of WGT only relates to an amendment of a planning scheme that causes land to be in a different zone. As such, WGT does not apply to property that changes between schedules in the same zone.
For example, a change from a Neighbourhood Residential Zone Schedule 1 to Residential Growth Zone Schedule 2 could attract WGT, while a change from Neighbourhood Residential Zone Schedule 1 to Neighbourhood Residential Zone Schedule 2 would not.
Exclusions and Exemptions
There are some types of land and re-zoning that are exempt or excluded from WGT:
- Land primarily used for residential purposes;
- Land entitled to a transitional exemption (transactions and rezoning before 15 May 2021);
- Land rezoned to or from the Urban Growth Zone within an Growth Areas Infrastructure Contribution (GAIC) area;
- Charitable and university land;
- Land rezoned to Public Land Zones;
- Land rezoned to correct an obvious or technical error in the Victoria Planning Provisions or a planning scheme; and
- Land rezoned to a Rural Zone (other than the Rural Living Zone).
These exemptions and exclusions are explained in detail by the SRO, however it is worth noting that WGT will not apply to land, up to two hectares, that is primarily used for residential purposes. This includes a principal place of residence, investment property and primary production land with a building affixed which may be used as a place of residence.
Will WGT affect you?
WGT will only affect landowners where rezoning has occurred. The most common reasons why rezoning may occur is by an application by a landowner for development reason, or as part of a broader change to an area that is promoted by a planning authority. A common scenario would be where a previously industrial, regional town has grown and in anticipation of future residential demand, land is rezoned to allow for residential developments.
To be aware of any potential rezoning affecting their property, landowners can contact their local planning authority. However, if an owner is not up to date with any potential changes in the local area or planning zone, they may not know about the requirement to pay WGT until they receive an assessment from the SRO.
Paying the tax and deferral
It is important to note that the liability to pay WGT is incurred by the landowner at the time the rezoning occurs. Once an assessment notice is received, the owner has until the due date for payment specified in the assessment notice to either pay WGT or apply to defer payment.
Upon application, payment can be deferred until the next dutiable transaction. This generally will be when the property is next sold and the WGT can be paid from the proceeds of the sale. However, to ensure WGT is not deferred indefinitely, there will be a 30-year limit on deferrals. This means a deferral will cease on the next dutiable transaction or after 30 years, whichever happens first.
A landowner can object to the valuations used in determining the uplift value and WGT amount. This objection must be in writing to the Commissioner of State Revenue and set out the grounds for the objection. The objection must be received within 2 months of the owner receiving their WGT assessment notice, objections made after this time are unlikely to be considered.