Background
Since 1 July 2023, a Windfall Gains Tax (WGT) has been applied to land in Victoria that is rezoned from one zone type to another where the rezoning results in a value uplift to the land of more than $100,000.
WGT is a substantial tax on the increased value of land in Victoria with certain exceptions (as listed below). Landowners may incur significant WGT liabilities and it is recommended that advice on WGT and other state taxes (eg, duty, commercial and industrial property tax and vacant residential land tax) and federal taxes (eg, capital gains tax (CGT) and goods and services tax (GST)) be obtained well before any rezoning activity commences.
When will a rezoning occur?
Rezoning occurs when an amendment of a planning scheme causes land to be in a different zone from the zone prescribed to it immediately before the amendment. Note that a rezoning for WGT purposes will not generally occur where the property is subject to a change in schedule within the same zone category. The SRO website provides the following example:
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.
Calculating WGT
WGT is calculated by reference to the difference in the capital improved value (CIV) before and after the land is rezoned to determine the value of any uplift. The Valuer-General Victoria is responsible for determining the value of the land before and after a rezoning.
No WGT liability is attracted for uplifts below $100,000.
If the uplift is between $100,000 and $500,000, WGT will be calculated at a rate of 62.5% of the uplift value that exceeds $100,000.
If the uplift exceeds $500,000, a tax rate of 50% will apply to the total value of the uplift (including on the first $100,000).
The Victorian State Revenue Office (SRO) website provides the following examples of calculating WGT:
Example 1:
If a rezoning of land results in a taxable value uplift of $300,000, windfall gains tax of $125,000 (($300,000 – $100,000) × 62.5%) is payable.
Example 2:
If a rezoning of land results in a taxable value uplift of $600,000, windfall gains tax of $300,000 ($600,000 × 50%) is payable.
WGT liability
The landowner at the time that the land is rezoned is liable for WGT. In determining the value uplift of land, all land owned by the person or a group (eg, where multiple lots of land are owned by commonly controlled entities) and subject to that rezoning is taken into account.
When rezoning occurs, landowners will be provided with a WGT assessment from the SRO based on the difference between the CIV on the 1st January in the year prior to rezoning and a supplementary CIV that takes into account the value of the land as rezoned.
Can you defer WGT?
Landowners can elect to defer all of part of the WGT liability until the next dutiable transaction/acquisition occurs, or for a maximum 30-year period following the rezoning event occurring, whichever arises first.
You must apply to defer before the due date listed on the WGT assessment. Deferral of WGT attracts interest at the applicable 10-year Treasury Corporation of Victoria bond rate (as of 31 December 2024, this rate was 5.12% per annum).
There are a range of events that can result in the deferral ceasing. Note that full payment, together with any accrued interest, falls due within 30 days if the deferral ceases. A dutiable transaction that occurs as a result of the sale of the land will generally always cease deferral.
Unpaid or deferred windfall gains tax will constitute a first charge on the land that ranks ahead of any existing mortgage or charge on the land. Information on WGT on land in Victoria can be obtained from property clearance certificates. These certificates can be requested by an owner and purchaser.
Objecting to WGT assessment
If a landowner disagrees with a WGT assessment, they may lodge an objection within 60 days of the issue date on the assessment. This is a short period of time and an objection may also take some time to prepare and collect the relevant valuation and other evidence before it can be finalised.
Objections can be made based on land value used in the assessment (either the pre or post rezoning value) or on the imposition of the WGT itself (eg, where an exemption should apply).
As the timeframe for objections is very short and the objection process technical, landowners should seek advice as soon as possible should they wish to object.
Exemptions
There are a number of exemptions and exclusions to the WGT, these include:
- Residential land exemption (up to 2 hectares)
- 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/university land
- Rezoning to public land zones
- Rezoning to correct error in the Victoria Planning Provisions or planning schemes
- Rezoning to rural zone (other than rural living zone)
An exemption may also be available for land that was subject to a contract of sale or option entered before the announcement of the WGT on 15 May 2021 that has not been completed or varied before the rezoning occurs.
Conclusion
WGT can result in a substantial tax liability that needs to be carefully managed, especially if the cash to pay this tax is not readily available. Moreover, WGT is just one of a variety of other state and federal taxes that needs to be considered to determine whether a rezoning or development of property will be viable in Victoria. In particular, our article below outlines a range of new and increased taxes imposed by the Victorian Government on landowners in recent years.
Advisers need to stay up to date on these developments to ensure they can provide suitable advice to their clients.
Naturally, DBA Lawyers would be pleased to assist landowners and advisers with any advice relating to Victorian taxes.
Related articles:
- Do you know about all these Victorian taxes?
- Another Victorian property tax set to increase substantially for homes, farmers and businesses
- The new commercial and industrial property tax that starts in Victoria on 1 July 2024
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This article is for general information only and should not be relied upon without first seeking advice from an appropriately qualified professional. The above does not constitute financial product advice. Financial product advice can only be obtained from a licenced financial adviser under the Corporations Act 2001 (Cth).
Note: DBA Lawyers presents monthly online SMSF training. For more details or to register, visit www.dbanetwork.com.au or call 03 9092 9400.
For more information regarding how DBA Lawyers can assist in your SMSF practice, visit www.dbalawyers.com.au.
By Shaun Backhaus ([email protected]), Director, Daniel Butler ([email protected]), Director and Nick Walker ([email protected]), Lawyer, DBA Lawyers
DBA LAWYERS
3 February 2025
