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New tax targeted to windfall gains accrued to landholders

The new Windfall Gains Tax (‘WGT’), introduced by the Windfall Gains Tax and State Taxation and Other Acts Further Amendment Act 2021 commences on 1 July 2023. The WGT applies to land rezoned after 1 July 2023. The WGT applies when the taxable value uplift of all land owned by an owner or group that is rezoned by the same planning scheme amendment is above $100,000, with some limited exceptions.

A tax on windfall gains associated with a rezoning is an efficient and targeted way of capturing value uplifts for the community, contributing to infrastructure and services where the property values increase due to the actions of Government (such as rezoning).

Land that was subject to a contract or option entered into before 15 May 2021 may not be subject to the WGT under transition concessions, where the terms of the contract are not altered after that date, and the transfer of the land has not occurred prior to the WGT event.

The landowner’s liability to pay WGT is accrued when the rezoning occurs but can be deferred for up to 30 years, or until the next dutiable transaction (or relevant acquisition) occurs. However, interest is payable on deferred windfall gains tax based on the 10-year bond rate applying from time to time.

How does WGT work?

Whether there is any liability for WGT and the amount payable is determined based on the amount of the value uplift, attributable to a rezoning of the land. The value uplift is the difference between the value of the land after rezoning, and the value of the land prior to the rezoning. WGT is accrued by landowners when their property is rezoned and there is a resulting value uplift, after taking into account any deductions, of more than $100,000.

The Valuer-General Victoria will be responsible for determining the value of the land before and after a rezoning. These valuations will be based on the capital improved value of the relevant land.

Owners of land liable to pay WGT will be issued with a WGT assessment with a due date for payment.

Calculation of the WGT

The WGT is calculated by determining the difference in value of the property as a result of the rezoning, i.e., the value uplift. The taxable value uplift is the value uplift less any available deductions and is used to calculate the WGT. Only taxable value uplifts of $100,000 or more attract WGT.

However, it is important to note that if an owner has more than one property that is affected by the rezoning, those are jointly assessed on the aggregate taxable value.

The WGT rate is nil where the taxable value uplift (the value uplift after deductions) is less than $100,000.

For taxable value uplifts between $100,001 and $499,999, the WGT rate is 62.5 percent. This applies to the amount of the taxable value uplift that exceeds the tax-free threshold of $100,000.

For taxable value uplifts of $500,000 or more the WGT rate is 50 percent. Note there is no tax-free threshold and this rate applies to the total amount of the taxable value uplift. The rate is lower given there is no tax-free threshold.

Tax Rates

Aggregated Taxable Value Uplift WGT Rate
$0 to $100,000
$100,001 to $499,999
62.5% of uplift above $100,000
$500,000 or more
50% of total uplift

Is there a right of objection?

The WGT will be administrated by the Commissioner of State Revenue as a taxation law under the Taxation Administration Act 1997 (TAA). The TAA provides rights of objections to the valuations used in the calculation of WGT.

Conclusion and Significance of WGT in future developments

If you receive a WGT assessment, and disagree with the valuation, please contact us as soon as possible to discuss whether you have a basis upon which to object.

It is otherwise important to pay the WGT assessed as any unpaid or deferred WGT will constitute a first charge on the relevant land, with provision to include WGT information on property clearance certificates issued under the TAA.

The implication of the WGT could make developments unfeasible from the perspective of developers, by adding further pressure on the supply side in regional areas due to developers now being reluctant to develop land parcels that will be subject to the new tax. If developers proceed nonetheless, the price of housing lots will likely increase, creating further upward pressure on house prices.