From 1 July 2023, many Victorian landowners whose land is rezoned will face the prospect of paying a significant new tax to the State Revenue Office in the form of the Windfall Gains Tax. A tax on windfall gains associated with a rezoning is an efficient and targeted way of capturing a fair share of these value uplifts for the community, contributing to infrastructure and services where the property values increase due to the actions of Government.
1. What is the Windfall Gains Tax?
The Windfall Gains Tax will be a new tax in Victoria commencing from 1 July 2023 that is triggered when there is an uplift of more than $100,000 in the value of land due to a rezoning of the land (other than excluded rezoning). The maximum tax payable is 50% of the uplift.
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. The taxable value uplift is the difference in the capital improved value (CIV) of the land before and after the rezoning takes effect, less any deductions. The Valuer-General Victoria will be responsible for determining the value of the land before and after a rezoning. These valuations will be based on the CIV of the relevant land.
2. What land will be subjected to the new tax?
Any land in Victoria that is rezoned, other than under an excluded rezoning, may be subject to the Windfall Gains Tax if the rezoning results in an increase in the value of the land of more than $100,000.
An excluded rezoning (i.e. rezoning that does not trigger the Windfall Gains Tax) is limited to the following:
• A rezoning between schedules in the same zone (for example, from Neighbourhood Residential Zone Schedule 2 to Neighbourhood Residential Zone Schedule 1);
• A rezoning to the Urban Growth Zone within the Growth Areas Infrastructure Contribution (GAIC) contribution area;
• The first rezoning after 1 July 2023 of land that was in the GAIC contribution area before that date;
• A rezoning to a public land zone or between different public land zones; or
• Other rezonings that the Treasurer may declare to be excluded rezonings in the Government Gazette.
3. Who is liable for the Windfall Gains Tax?
The owner of the land at the time the rezoning takes effect is liable for the Windfall Gains Tax.
• Multiple owners
The owners will be jointly assessed for the new tax without regard to the separate interest of each owner.
• Land held on trust
The trustee will be assessed for the Windfall Gains Tax in relation to all land subject to the trust, without regard to land held by the trustee for any other trust or for the trustee’s own benefit.
• Land held by related corporations and trusts
Members of a group of related corporations, trusts or a combination of related corporations and trusts are jointly and severally liable for the Windfall Gains Tax on all the land held by members of the group that is rezoned by the relevant Windfall Gains Tax event. The grouping rules in the legislation are broader than the equivalent rules that apply for land tax purposes, particularly in respect of their application to groups of trusts.
4. How much is the Windfall Gains Tax?
For a rezoning of land that results in a taxable value uplift:
• Less than $100,000
No tax will be applied.
• 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.
5. When does the Windfall Gains Tax have to be paid?
Owners of land liable to pay the tax will be issued with a Windfall Gains Tax assessment with a due date for payment.
They will have the option to defer payment of any liability until the next dutiable transaction (or relevant acquisition) occurs, or until 30 years after the rezoning event, whichever occurs first. Certain excluded dutiable transactions and relevant acquisition will not cease deferral.
6. Are there any exemptions?
Exemptions are available for:
• 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, owned by the same owner or group and rezoned by the same planning scheme amendment.
• in relation to rezonings, to correct obvious or technical errors in the Victoria Planning Provisions or a planning scheme.
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.
Chang Accounting Advisory Pty Ltd, we are CPA practice and tax agent. If you or your families or friends need our services, please feel free to contact our team for any assistance.
This article is for informational purposes only and does not form part of our advice. This article is based on Victoria Department of Treasury and Finance guidelines. Please contact our team if you need any assistance.
Claire Chang, 0497 131 419, claire.chang@changadvisory.com.au, wechat: clairechang26
Michelle Cui, 0433 539 870, michelle.cui@changadvisory.com.au, wechat: michellejc
Claire Chang