On track to commence on 1 July 2023, the Victorian State Government’s new Windfall Gains Tax looks to take a share of value gains on properties attributed to government actions (i.e. rezoning) and redistribute them to local projects such as infrastructure and other services.
Background
The Windfall gains tax was first announced in May 2021 as a part of the Victorian State Budget and the bill received royal assent on 30 November with commencement scheduled for 1 July 2022. Due to complications regarding the COVID-19 pandemic as well as various economic factors, the commencement date was postponed until 1 July 2023. In the time since the bill was initially passed, the Government has proposed to alter the policy in response to current conditions.
What is the Windfall Gains Tax?
This tax looks to capture a portion of any windfall gains generated by the rezoning or the amendment to a planning scheme of a property/properties that exceed a value of $100,000 (known as the “taxable value uplift”). For gains between $100,000 and $500,000, 62.5% of the uplift will be tax, while an uplift greater than $500,000 will have 50% taxed. Any property gains that do not exceed $100,000 will not be affected by this Windfall Gains Tax.
In evaluating the liability of land for this tax, all land owned by an individual or group will be considered. What this means practically is that capital gains on developments that are affected by rezoning will be summed collectively when determining whether the tax is applicable.
Exemptions from Windfall Gains Tax
Limited exemptions from the new tax exist including:
- Land that is rezoned to correct an error in a planning scheme or the Victoria Planning Provisions (VPP).
- Residential land smaller than 2 hectares that has been rezoned if it is the sole residential land owned by a taxpayer.
- Land rezoned to a:
- Public Lands Zone
- Rural Zone
- As well as to or from an:
- Urban Growth Zone within the Growth Areas Infrastructure Contribution area
Payment of Windfall Gains Tax
For any land that meets the rezoning conditions outlined above, owners of this land must pay the windfall gains tax.
Owners of any land affected by the tax will be provided with a due date for payment along with a windfall gains tax notice of assessment. At the time this tax is due, the owner may defer the payment to 30 years after the rezoning or until the next dutiable transaction occurs, whichever happens sooner. At the conclusion of the deferral, full payment of the tax will be due within a 30 day period. Furthermore, any objections to the assessment must be made within 60 days of receiving the notice.
What do you need to do about this?
If you are looking to buy, sell or develop any property that may be rezoned in the foreseeable future, or has been rezoned following the commencement of the bill in June 2023, you must identify whether or not the property has any windfall gains tax liability and if so, who is responsible for paying this tax and whether the transaction of the land will cause the deferral of the tax payment to cease. For example, any deferred windfall gains tax will typically become payable at settlement when the land is sold, however, the deferral would remain in place if the owner was instead entering into a development agreement where profits are shared.
In addition, it is important to be aware of the limited period in which payments or objections can be made as outlined prior.
Please contact us for further information on Windfall Gains Tax and how it may apply to you.
Sources:
Articles:
Legal Practitioners’ Liability Committee, ‘Are you on top of the Windfall Gains Tax regime?’ (2022)
State Revenue Office, ‘Windfall Gains Tax’ (2023)
Department of Treasury and Finance Victoria
Other:
Windfall Gains Tax and State Taxation and Other Acts Further Amendment Bill 2021
