What you need to know about the windfall gains tax changes

Updated 30 November 2021

The Victorian Government has created a new Act known as the Windfall Gains Tax Act 2021 to establish the windfall gains tax. The Act, which was passed on 30 November 2021, will see landowners pay tax on windfall gains accrued when the value of their land increases by more than $100,000 due to the actions of government, including government decisions to rezone land.

The commencement date for the tax, initially proposed to be next year, has been postponed one year and will begin on 1 July 2023.

A Windfall Gains Tax Factsheet has been issued by Government that explains in more detail how the tax will work, which we outline below.

This information is important for landowners and land developers who are affected by this tax.

Key changes

• The commencement date has been postponed by one year to 1 July 2023
• Transition arrangements to exempt rezoning which meet the following as at 15 May 2021:
  • certain types of agreements to transact land (or options to transact land) already in place at the time of the rezoning decision.
  • land with a planning scheme amendment that had obtained a tracking number in the Amendment Tracking System administered by the Department of Environment, Land, Water and Planning, or the Minister for Planning has agreed to prepare the rezoning and where significant costs have been incurred by the landowner to support the amendment, being the lesser of $100 000 or 1% of the pre-rezoning valuation.
• An exemption for residential land which includes a dwelling fit for occupancy at the time of the rezoning, with the exemption applying for up to two hectares of residential landholdings, regardless of whether the dwelling is the landowner’s principal place of residence.
• Charities will not pay any windfall gains tax liability on their landholdings, so long as the land continues to be used for charitable purposes for a 15 year period after the rezoning event.
• Windfall gains tax liabilities may be deferred until the next dutiable transaction or until 30 years elapses, whichever occurs first. A subdivision of land will not cease deferral arrangements.
• The tax will be based on value uplift measured at the point of the rezoning event on a Capital Improved Value basis rather than a Site Value basis.
• An exemption for land that is rezoned to a Rural Zone, other than the Rural Living Zone.

The rates and thresholds previously announced remain unchanged (see below), as do the rezoning types that remain exempt, which covers rezonings to Public Land Zones and rezonings to and from the Urban Growth Zone within the Growth Areas Infrastructure Contribution area. Landowners will also have the right to object to pre-rezoning and post-rezoning valuations after the tax assessment is made.

Tax rates

A tax-free threshold of $100,000 will apply.

Value uplift	Tax payable
<$100,000	$0
$100,000 to $499,999	62.5% of uplift above $100,000
$500,000+	50% of total uplift

How will tax be calculated

The windfall gains tax will be calculated based on valuations undertaken by the Valuer-General Victoria on the pre-rezoning value and the post-rezoning value of land, with the difference between the two representing the value uplift of the land. This calculation will be based on the Capital Improved Value of the land.

The pre-rezoning value will be based on the most recent annual general valuation, which is used for other purposes including the calculation of council rates and is calculated as at 1 January. The post-rezoning value will be based on a supplementary valuation of the land based on the new rezoning and will also be valued as at 1 January of the same year.

This approach allows the value uplift to be calculated at a point in time, such that any growth in value before or after the rezoning is not captured in the calculation of the windfall gains tax.

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. 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.

If you have any questions about the windfall gains tax or how it may affect you, contact Damien Palmer on 03 5443 0344 or email afs@afsbendigo.com.au