Property Windfall Gains Tax – how will it affect you?

From 1 July 2023 the Victorian Government will implement a Windfall Gains Tax (WGT) on the uplift in value that occurs as a result of rezoning land.

‘Rezoning’ means an amendment of a planning scheme that causes land to be in a different zone from the zone it was in immediately before the amendment. ‘Uplift in value’ is the difference between the capital improved value of the land before and after the rezoning. The uplift in value must be more than $100,000 for WGT to apply.

Essentially this means that if you own land that is rezoned, and as a result of the rezoning, the value of the land increases by more than $100,000, WGT may apply.

The rationale is that owners are benefiting from the increase in land value as a result of the actions of government in rezoning and therefore some of that benefit should go back to the community via tax.  

What is the rate of Windfall Gains Tax?

For an increase in the value of the land of more than $100,000 but less than $500,000 the rate is 62.5% of the value that exceeds $100,000.

For an increase in the value of the land of more than $500,000, the rate is 50% of the total increase.

When does Windfall Gains Tax have to be paid?

Owners of land subject to WGT will be issued with an assessment and given a due date for payment.

There is the option of deferring all or part of WGT until the next dutiable transaction occurs (e.g. you sell your property), or 30 years after the rezoning event, whichever occurs first. However, interest is payable on any deferred payments. Once the deferral ceases, payment of the WGT and interest must be paid within 30 days.

Are there any exemptions?

There are a number of exemptions from WGT including:

1. Residential land or farmland which contains a residence (or a residence is being constructed, or a building permit has been issued to construct a residence) of up to 2 hectares, provided that the land is the only land of the owner which has been rezoned. If the land is more than 2 hectares, the first 2 hectares are exempt from WGT.
2. Rezoning between schedules in the same zone.
3. Pre-existing contracts of sale and options entered into before 15 May 2021.
4. Rezonings underway before 15 May 2021.
5. Land rezoned to correct errors.
6. Land rezoned to a Rural Zone, Farming Zone or Green Wedge Zone.
7. Land rezoned to or from the Urban Growth Zone within the Growth Areas Infrastructure Contribution Area.

For charitable land, the WGT and interest will be waived if the land remains as charitable land for 15 years after the rezoning.

What does this mean? An example

John owns industrial land on the outskirts of a regional town. Overtime the town’s population increases and in October 2024 the land is rezoned to Neighbourhood Residential in anticipation of future residential developments. Before the rezoning, the property was valued at $400,000. After the rezoning the property is valued at $800,000 resulting in a value uplift of $400,000. WGT at the rate of 62.5% is payable on the value that exceeds $100,000. Therefore, the WGT liability on $300,000 is $187,500. John can choose to pay the WGT when assessed or defer the liability, accruing interest, until the next dutiable transaction, or October 2054 (whichever occurs first).

If you have any questions regarding WGT or believe it may soon be applicable to your property, please contact us for further advice.