Windfall gains tax: The new (unrealised) gains tax on rezoned Victorian land
7 December 2021
The_Windfall Gains Tax and State Taxation and Other Acts Further Amendment Act 2021_recently received Royal Assent.
This law has introduced a new windfall gains tax (WGT) which will broadly apply in circumstances where Victorian land is rezoned.
When does WGT apply?
The WGT will apply from 1 July 2023 in circumstances where Victorian land is rezoned and the taxable value uplift (i.e. the increase in the capital improved value (CIV) of the land as a result of the rezoning) is more than $100,000.
The owner of the land (or joint owners of jointly owned land) will be liable to the WGT.
When will WGT not apply?
There will be no WGT for rezonings:
between schedules in the same zone;
to the urban growth zone within the Growth Area Infrastructure Contribution (GAIC) area;
that cause land to be in a public land zone or between public land zones; and
declared to be excluded rezonings in the Government Gazette.
Further exemptions and waivers from the WGT apply to:
up to two hectares of residential land (including primary production land but not commercial residential premises) with a dwelling on the land (regardless of whether the house is a principal place of residence);
charitable land that remained charitable land for 15 continuous years after the rezoning (but only if the WGT is waived by the Commissioner);
land rezoned to correct a previous technical zoning error;
land subject to an uncompleted contract of sale entered into before 15 May 2021;
land subject to an option to enter into a contract of sale before 15 May 2021 that has not been exercised or has been exercised and the contract has not completed; and
land rezoned before 15 May 2021.
What are the options if WGT does apply?
A land owner must either pay the WGT by the due date on the notice of assessment received or can choose to defer the payment of up to 100% of the WGT and pay this amount within 30 days of the earliest of the following events occurring:
a dutiable transaction in relation to the land;
a landholder duty relevant acquisition; or
30 years after the rezoning.
Any deferred WGT will be subject to interest at the Treasury Corporation of Victoria 10 year bond rate.
Further, if any part of the WGT that is not deferred is not paid on time, the whole of the WGT will become immediately payable (i.e. as if there was no choice made to defer payment of the WGT).
In certain circumstances, an acquirer of the land (transferee) may elect to pay any deferred WGT.
How is the WGT calculated?
The WGT amount payable is calculated based on the quantum of the taxable value uplift:
Taxable value uplift
Rate of WGT
$0 to $100,000
$100,001 to $499,999
62.5% of taxable value uplift in excess of $100,000
$500,000 or more
50% of taxable value uplift
As all landholdings are aggregated for WGT purposes, a land owner cannot claim multiple WGT-free thresholds for multiple rezoned properties that are commonly owned (e.g. if uplift on each property is less than $100,000).
What does this mean for land owners?
The WGT is a significant additional tax that will be levied on land owners where the capital improved value of their land has increased as a result of a rezoning which they may or may not have any control over.
In addition, as the WGT is levied on unrealised gains, many land owners will be liable to pay the WGT even if they have not:
generated any substantial revenue from the land; or
entered into an agreement to buy or sell the land.
The WGT law is extremely complex, so advice should be sought in respect of any land owned or expected to be acquired that is likely to be subject to rezoning.