The Windfall Gains Tax (WGT) is a recently introduced tax imposed on the increase in value of property in Victoria as a result of a rezoning of that land. WGT came into effect on 1 July 2023 with significant implications on Victorian real estate and especially in the property development sector.
The WGT can be triggered by the landowner making a request to the local council to have their land rezoned; however, it can also occur as part of a broader change to the area as promoted by a planning authority.
When is the WGT triggered?
Since 1 July 2023, the WGT is payable by the owner of land when a liable rezoning occurs (WGT event). A WGT event will happen to the land when the rezoning decision results in an increase in the value of the land that is above $100,000.
The calculation of this increase in the value of the land (being the ‘taxable value uplift’) is the difference in the capital improved value of the land before and after the rezoning takes effect, less any deductions.
Where a landowner has multiple properties and related companies and trusts are grouped together, WGT will be assessed on the aggregate of all properties held by the individual or grouped entities.
Once a liable rezoning occurs, the State Revenue Office (SRO) will issue WGT assessments to landowners, which must be paid by the due date unless a deferral election is made.
What is rezoning?
A rezoning is an amendment of a planning scheme that causes land to be in a different zone from the zone that it was in immediately before the amendment. Accordingly, for the purpose of windfall gains tax, changes between schedules within the same zone are not a rezoning (i.e. not a windfall gains tax event).
For example, a change from Neighbourhood Residential Zone Schedule 1 to Residential Growth Zone Schedule 2 is captured, while a change from Neighbourhood Residential Zone Schedule 1 to Neighbourhood Residential Zone Schedule 2 is not captured.
The taxable value uplift is the difference in the capital improved value (CIV) of the land before and after the rezoning takes effect. The Valuer-General Victoria is responsible for determining the value of the land before and after a rezoning.
The windfall gains tax provisions allow the Government to prescribe deductions that can reduce the taxable value uplift; however, at this stage, the Government has decided not to prescribe any allowable deductions.
How is WGT calculated?
The WGT is calculated on the taxable value uplift of land. The taxable value uplift is the difference between the capital improved value of the land before (CIV1)and after the rezoning takes effect (CIV2). Where a rezoning of land results in a taxable value uplift, the following tax rates apply:
- More than $100,000 but less than $500,000: a marginal rate of 62.5% will apply on the uplift more than $100,000
- More than $500,000: a rate of 50 per cent will apply to the total uplift
In determining the value uplift of land, all land owned by the person or group and subject to that rezoning (aggregated land value) is taken into account.
Are there any exemptions available for the Windfall Gains Tax?
There are several exemptions or exclusions from WGT, including:
- Residential land exemption
- Land entitled to a transitional exemption from WGT
- Land rezoned to or from the Urban Growth Zone within the 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
- Land rezoned to a Rural Zone (other than the Rural Living Zone)
What is Transitional Relief?
The SRO has announced that there is transitional relief for contracts, option arrangements and proponent-led rezonings that had commenced prior to 15 May 2021, being the date the WGT was announced.
WGT may not apply where:
- a contract was negotiated prior to 15 May 2021 and completed after 1 July 2023, after which a WGT event occurs (i.e. a liable rezoning);
- options were entered into before 15 May 2021 and were not exercised, or exercised but not completed, before 1 July 2023 and a WGT event occurs; or
- in respect of a proponent-led rezoning, the owner requested the amendment before 15 May 2021 and the request was registered in the Amendment Tracking System by the council before that date. Further, the owner must have incurred costs in relation to the rezoning above the threshold amount (being the lesser of 1% of the capital improved value of the land immediately before the WGT event, and $100,000).
What if you wish to object to a WGT assessment?
Where an owner of a property disagrees with a WGT assessment, they can lodge an objection within60 days of the assessment in respect of either:
- The CIV1 or CIV2 of the land; or
- The imposition of the WGT itself.
The Commissioner has no discretion to extend the 60-day time limit for lodging an objection.
If the CIV is specified in a rates notice, the owner can apply for an objection with the local Council.
When is the Windfall Gains Tax payable?
The liability for WGT arises at the time the rezoning of land occurs. Owners of land liable to pay the WGT will be issued an assessment notice from the Victorian State Revenue Office which is typically due 30 days after the assessment date.
Owners may elect to defer payment of the WGT liability until the earlier of 30 years after the rezoning or the date of the next dutiable transaction or relevant acquisition concerning the land (noting certain dutiable transactions and relevant acquisitions will not cease deferral). If the deferral ceases, the full payment must be made within 30 days.
Unpaid or deferred WGT will constitute a first charge on the relevant land. Property clearance certificates can be requested by an owner, a genuine purchaser or a mortgagee of land. These will show any unpaid windfall gains tax liabilities on a land or give notice of any undetermined liabilities.
Can a WGT liability be passed onto a purchaser?
From 1 January2024, vendors are prohibited from passing on a WGT liability to purchasers, where that liability is known as at the date of the contract of sale of land(i.e. it has been assessed under a notice of assessment and served on the vendor).
