Windfall Gains Tax to commence on the 1st of July 2023
What is the Windfall Gains Tax?
- The Windfall Gains Tax is set to commence in Victoria on the 1st of July 2023
- The tax liability is created when a land rezoning creates an increase in land value of more than $100,000
- The land owner at the time of the rezoning is liable for the tax
- The tax will roughly equate to 50% of the increase in land value
- Rezoning before the 15th of May 2012 may be exempt
- The Valuer-General Victoria is responsible for determining the value of the land before and after a rezoning
What is rezoning?
A rezoning is an amendment of a planning scheme that causes land to be in a different zone from the zone that it was in immediately before the amendment.
Accordingly, for the purpose of windfall gains tax, changes between schedules within the same zone are not a rezoning event.
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.
Rate of windfall gains tax
For a rezoning of land that results in a taxable value uplift:
- more than $100,000 but less than $500,000: the tax will apply at a marginal rate of 62.5% on the uplift above $100,000
- $500,000 or more: a tax rate of 50% will apply to the total uplift
Exemptions and exclusions from windfall gains tax
There are a number of exemptions or exclusions from windfall gains tax:
- Residential land exemption
- Land entitled to a transitional exemption from windfall gains tax
- Land rezoned to or from the Urban Growth Zone within the Growth Areas Infrastructure Contribution (GAIC) area
- Charitable and university land
- Land rezoned to Public Land Zones
- Land rezoned to correct an obvious or technical error in the Victoria Planning Provisions or a planning scheme
- Land rezoned to a Rural Zone (other than the Rural Living Zone)
Timing of liability and deferral of payment
A landowner becomes liable for the Windfall gains tax at the time of the rezoning event but may choose to defer payment of the liability until the next dutiable transaction, when cashflow to meet the liability will be generated.
However, to ensure liabilities are not deferred indefinitely, there will be a 30-year limit on deferrals. This means a deferral will cease on the next dutiable transaction or after 30 years, whichever happens first.
Useful Links:
https://www.dtf.vic.gov.au/windfall-gains-tax
https://www.sro.vic.gov.au/windfall-gains-tax
https://www.sro.vic.gov.au/windfall-gains-tax-exemptions-and-exclusions
https://www.legislation.vic.gov.au/as-made/acts/windfall-gains-tax-and-state-taxation-and-other-acts-further-amendment-act-2021