What is the new Windfall Gains Tax?
From 1 July2023, a new land tax will be introduced by the Victorian Government. The Windfall Gains Tax (“WGT”) is a scheme that aims to tax the increase in land values which occur as a result of Government re-zoning. It would appear that where the Government has caused the increase in value, it believes that it is entitled to receive the benefit, to fund infrastructure and community services.
“Re-zoning” refers to the amendment of a planning scheme in a locality that causes the land in it to be in a different zone from the zone that it was previously in. It is worth noting that the WGT only applies to the “taxable value uplift of the land” i.e. the difference in the capital improved value of the land before and after the re-zoning takes effect, less any deductions.
If land has increased in value as a result of Government rezoning, the WGT shall take a portion of the profit of that increased value as a tax on the value of the increase. The WGT will be payable:
If the taxable value of the land receives an uplift of more than $100,000 but less than $500,000, the tax will apply at a marginal rate of 62.5% on the amount of the uplift above $100,000;
If the taxable value of the land receives an uplift of $500,000 or more, a tax rate of 50% will apply to the total amount of the uplift.
The WGT will be administered by the Commissioner of State Revenue (“Commissioner”) as a taxation law under the Taxation Administration Act 1997 (“TAA”), which provides rights of objection to the valuations used in the calculation of WGT. This enables landowners to reject the pre-rezoning or post-rezoning valuations of their land if they believe that the valuations are not representative of the land’s correct value.
Not all land shall be subject to the WGT. For example, land that is capable of being used for residential purposes at the time of the rezoning, up to a maximum of 2 hectares of such residential land, which is owned by the same owner or group and re-zoned by the same planning scheme amendment, is exempt. A waiver is also available for land owned by a charity if the land is used and occupied by a charity exclusively for charitable purposes for 15 years after the rezoning.
The primary aim of the tax is to ensure that a share of the profits received by significant landowners as a result of Government re-zoning are returned to taxpayers. The WGT will not affect ordinary home, investment or holiday-home owners.
On the other hand, if you are a developer and you own land which may be subject to re-zoning in the next 12 months, it is important that you obtain legal advice regarding whether the re-zoning process could be accelerated and thus the imposition of the WGT avoided.
If you would like to discuss these or any other issues with our Property Law Team, please telephone 9870 9870 or email us.