From 1 July 2023 a windfall gains tax (WGT) will apply to land that is rezoned by government resulting in a value uplift to the land in excess of $100,000.
Why?
Significant windfall gains can accrue to landholders when the value of their land increases due to government decisions to rezone land. According to the Victoria State Government, the imposition of the WGT “is an efficient and targeted way of capturing a fair share of these value uplifts for the community”.
A rezoning occurs when a planning scheme is amended to cause land to be zoned differently. For example, from land zoned industrial or farming to land zoned residential.
Calculation of WGT.
WGT will be calculated based on the value uplift (any less deductions) from the value according to the Valuer-General’s most recent valuation used to calculate council rates, and the post-rezoning value based on a supplementary valuation calculated as at the same date (eg the rezoning occurs on 1 March 2024 so both calculations are calculated as at 1 January 2024).
The relevant value is the capital improved value (CIV). The deductions will be prescribed by regulations (yet to be legislated).
WGT rate.
Where a value uplift is:
Less than $100,000 Nil
More than $100,000 but less than $500,000 62.5% of the value uplift above $100,000
More than $500,000 50% of the value uplift
There are some exemptions, exclusions and waivers, including in general terms:
- Land that is capable of being used for residential purposes at the time of the rezoning, limited to a maximum of 2 hectares.
- Rezonings to correct technical errors in a planning scheme or planning provision.
- Land owned by a charity.
- Rezoning to or from Urban Growth Zone within the Growth Areas Infrastructure Contribution (GAIC) area (reflecting the land being subject to GAIC).
- Rezoning to public land zones.
- Land to which transition arrangements apply: land subject to a contract or an option agreement entered into prior to 15 May 2021 (strict criteria apply) or where the rezoning was already underway before 15 May 2021.
Who pays the WGT and when?
The registered owner of the land subject to the rezoning pays the WGT. The owner will be issued with a WGT assessment notice with a due date for payment, but will have the option to defer payment (or the whole or part) until the first to occur of:
- the next dutiable transaction (eg when the land is sold);
- the next relevant acquisition of the landowner (eg sale of company shares – unless an exclusion applies); or
- 30 years after the rezoning event.
Landowners will need to request that the WGT be deferred upon receipt of the WGT assessment.
Interest will accrue on the deferred WGT at the Treasury Corporation of Victoria 10-year bond rate (3.35% on 21 May 2022). The SRO’s interest will be secured by a First Charge on the title to land in respect of unpaid WGT and interest.
Note that where more than one property owned by the same owner is affected by rezoning, the properties are jointly assessed, and the taxable value aggregated.
How the WGT will interplay with the Capital Gains Tax (CGT) regime is not yet clear.
For legal advice contact Fleur Craig of Armour-Craig Legal on (03) 5636 4986 or fleur@armourcraiglegal.com.au.