The Windfall Gains Tax and State Taxation and Other Acts Further Amendment Bill 2021 was introduced into the Victorian Parliament on 12 October 2021.
The Bill will establish the Windfall Gains Act 2021 which imposes a windfall gains tax (WGT) on the increase in the value of land resulting from a rezoning.
Windfall gains tax
An owner of land will be liable for WGT when the land is rezoned by a planning scheme decision after 1 July 2023 and the rezoning decision results (WGT Event) in an increase in the value of the land by $100,000 or more.
The increase in the value of the land will be calculated by the difference between the capital improved value of the land before and after the rezoning, less any deductions.
The rate of WGT will be:
- 62.5% of the part of the taxable value uplift that exceeds $100,000 where the taxable value uplift is more than $100,000 but less than $500,000; and
- a flat 50% of the taxable value uplift where the taxable value uplift is $500,000 or more.
For example, if a property was originally valued at $1,500,000 and after rezoning is valued at $2,500,000 with no deductions, a WGT of $500,000 will apply.
Aggregation of windfall gains tax
Where an owner has multiple properties, they should be aware that WGT is assessed on the aggregated taxable value uplift of all the land.
This also applies to groups of companies and related trusts. Where there are related corporations which form corporate group or related trusts, the taxable value uplift of all land will be aggregated.
The effect of this is, for example, where three related corporate entities each have a $100,000 increase in the value of separately owned land after a rezoning, this will be aggregated to $300,000 taxable value uplift and WGT will apply.
Exemptions from windfall gains tax
WGT will be payable on the taxable value uplift of more than $100,000 unless a relevant exemption applies. Exemptions from WGT include:
- residential land under 2 hectares, but does not include commercial residential premises, residential care facilities, supported residential services or retirement villages;
- where the land is rezoned due to an amendment under the Planning and Environment Act 1987 to correct an error in the planning provisions or planning scheme; and
- where there was a pre-existing contract of sale, option, or rezoning underway before 15 May 2021.
Deferral of windfall gains tax
An owner can elect to defer the payment of up to 100% of the WGT, however interest will accrue on the deferred WGT amount. This election must be made in writing to the Commissioner and must be made before the day on which the WGT is payable.
The deferred WGT will become payable on the sooner of:
- a dutiable transaction, other than an excluded transaction, occurring in relation to the land; or
- the occurrence of a relevant acquisition within the meaning of the Duties Act 2000 in respect of a landholder who is the owner of the land; or
- 30 years after the WGT arose.
Charities may have the WGT waived if they continue to use the land for charitable purposes for 15 years after the WGT Event.
The proposed WGT has not yet come into effect and does provide for some transitional arrangements for contracts, option arrangements and proponent-led rezonings that were underway prior to 15 May 2021. Victorian land owners should seek tax advice on the impact of WGT, the applicability of any exemptions and options of deferral.
This article was written by John Caravousanos, Partner, and Ebony-Lee Corbyn, Solicitor.