What You Need To Know About Windfall Gains Tax
Written by: Canny Accounting
The Victorian Government has introduced a new tax (known as the Windfall Gains Tax) on landholders that accrue significant windfall gains when the value of their land increases due to rezoning. These landholders will now pay a tax on their windfall gains.
What is Windfall Gains Tax?
Windfall Gains Tax (WGT) will apply to land that is subject to a government rezoning resulting in a value uplift to the land of more than $100,000.
A rezoning is an amendment of a planning scheme that causes the land to be in a different zone from the zone that it was in immediately before the amendment. The taxable value uplift is the difference in the capital improved value (CIV) of the land before and after the rezoning takes effect, less any deductions. The Valuer-General Victoria will be responsible for determining the values of the land before and after a rezoning.
When Does It Come Into Effect?
The Windfall Gains Tax will commence from 1 July 2023, and it applies to the rezoning of land that occurs after 1 July 2023.
How Much Is The Windfall Gains Tax?
For a rezoning of land that results in a taxable value uplift:
- More than $100,000 but less than $500,000: the tax will apply at a marginal rate of 62.5% on the uplift of about $100,000; and
- $500,000 or more: a tax rate of 50% will apply to the total uplift.
Windfall Gains Tax Exemptions
Residential Land Exemption
Windfall Gains Tax is not imposed on up to 2 hectares (i.e., 20,000 square metres) of residential land or primary production land that includes a residence fit for occupancy at the time of the rezoning, or where a building permit for the construction of a residence has been issued.
This exemption applies regardless of whether the dwelling is the owner’s principal place of residence (in other words, it can include holiday homes and investment properties).
Vacant land is not available for the exemption.
Rezoning Errors
Windfall Gains Tax is not imposed if the rezones constituting the Windfall Gains Tax event is caused by an amendment to correct an obvious or technical error in the Victorian Planning Provisions or a planning scheme.
Pre-Existing Contracts of Sale + Options
Windfall Gains Tax is not imposed on land rezoned by a Windfall Gains Tax event if the land is subject to a contract of sale provided that:
- The contract was entered into before 15 May 2021; and
- It has not been completed by the transfer of the land before the Windfall Gains Tax event occurred.
Rezonings Underway Before 15 May 2021
Windfall Gains Tax is not imposed on rezoned land if the relevant planning scheme amendment was prepared by a Council or Planning Minister before 15 May 2021.
Charitable Land
Windfall Gains Tax will be waived in respect of land owned by a charity that is used and occupied by the charity exclusively for charitable purposes if the land remains as charitable land for 15 years after the relevant Windfall Gains Tax event. Part of the liability will be waived where only part of the land has remained as charitable land for that period.
Windfall Gains Tax Exclusions
A small number of rezoning are excluded from Windfall Gains Tax:
- Rezonings to and from the Urban Growth Zone within the Growth Areas Infrastructure Contribution (GAIC) area, recognising that these properties are already subject to GAIC; and
- Rezonings to Public Land Zones to reflect that such land will be used for public purposes.
Who Will Be Affected?
Any land in Victoria that is rezoned, other than under an excluded rezoning, may be subject to the Windfall Gains Tax if the rezoning results in an increase in the value of the land of more than $100,000.
The owner of the land at the time the rezoning takes effect is liable for Windfall Gains Tax.
Where land is owned by multiple persons, the owners will be jointly assessed for Windfall Gains Tax without regard to the separate interest of each owner.
Where land is held on trust, the trustee will be assessed for the Windfall Gains Tax in relation to all land subject to the trust, without regard to land held by the trustee for any other trust or for the trustee’s own benefit.
Members of a group of related corporations, trusts or a combination of related corporations and trusts are jointly and severally liable for Windfall Gains Tax on all the land held by members of the group that is rezoned by the relevant Windfall Gains Tax event. The grouping rules in the legislation are broader than the equivalent rules that apply for land tax purposes, particularly in respect of their application to groups of trusts.
When Is Windfall Gains Tax Payable?
A landowner will become liable for Windfall Gains Tax at the time of the rezoning event and will be issued a notice of assessment for the Windfall Gains Tax liability. The Windfall Gains Tax will be payable by the due date specified in the notice of assessment.
Is There An Option To Defer The Payment of Windfall Gains Tax?
Before the due date of the notice of assessment, the landowner can elect to defer payment of up to 100% of the Windfall Gains Tax until –
- A dutiable transaction or relevant acquisition occurs in relation to the land; or
- 30 years after the rezoning event, whichever occurs first.
If the landowner elects to defer payment of part or all of the Windfall Gains Tax, the deferred liability will accrue interest at the 10-year bond rate (1.84% as at 30 September 2021).
Where the landowner elects to defer part of their Windfall Gains Tax liability, the part not differed must be paid by the due date in the notice of assessment, otherwise, the entire Windfall Gains Tax liability becomes immediately payable as if the election to defer part of the Windfall Gains Tax has never been made.
Things to keep in mind:
- Windfall Gains Tax only applies to rezoning after 1 July 2023.
- The tax does not apply to a contract to sell land. Rather, it applies to the rezoning of land.
- The owner of the land at the time of rezoning is liable for the tax.
- The tax liability can be deferred up to 30 years.
- The tax does not apply on up to two hectares of residential land.
Canny Group + Expert Taxation Services
The new Windfall Gains Tax is quite complicated and can result in a large tax bill if it applies to your land. If you are unsure if your land is going to be subject to these new changes in 2023, get in touch with our team so we can help you along the way.
