How will the Bill impact Victorian taxpayers?
At a glance
What has changed? The Bill introduces a new windfall gains tax imposed on specific land value uplifts that arise as a result of rezoning.
Who does it apply to? Victorian landowners (some exclusions below).
When does it apply? On or after 1 July 2023.
As initially announced in the 2020-21 Victorian State Budget, new legislation has been introduced that details the proposed concept of a Windfall Gains Tax (WGT) in Victoria. Introduced in the Victorian Legislative Assembly on Tuesday, 12 October 2021, the Windfall Gains Tax and State Taxation and Other Acts Further Amendment Bill 2021 (Bill) proposes that a WGT will be imposed on the increase in the value of land associated with a rezoning decision where there is a value uplift of more than $100,000.
Specifically, the WGT would apply when the taxable value uplift of land owned by either an owner or group resulting from the same planning scheme amendment (rezoning) exceeds $100,000.
Members of a group will be assessed on the aggregated taxable value uplift of all land that is rezoned and is owned by the members of the group, with each member being jointly and severally liable for the tax assessed to the group.
When will the tax be payable?
The following table summarises how Victoria's WGT will be imposed under the draft legislation:
|Value uplift||Windfall gains tax payable|
|Less than $100,000||$0|
|Between $100,000 and $500,000||62.5% of the uplift exceeding $100,000|
|Exceeding $500,000||50% on the total uplift|
Victorian land owners who are liable to pay WGT will be able to defer payment of up to 100% of the tax until the earlier of:
- 30 years after the rezoning;
- a dutiable transaction (other than certain excluded dutiable transactions) occurring in relation to the rezoned land; and
- a relevant acquisition (other than certain excluded relevant acquisitions) occurring in respect of a landholder who is the owner of the rezoned land.
Are there any exceptions?
The following situations will be exempt from the windfall gains tax:
- residential land that does not exceed two hectares, which includes land which has a building, or a building is being constructed or renovated, designed and constructed primarily for residential purposes (noting this does not include commercial residential premises, residential care facilities or retirements villages unless separately titled);
- primary production land that contains a home will be exempt for up to two hectares (noting that the test is applied per title so if a farm is comprised of five titles, only the title with the residence on it will be eligible for the exemption);
- land used exclusively for charitable purposes if the land continues to be used for charitable purposes for the next 15 years after a rezone;
- land rezoned to correct technical errors;
- Public Land Zones, which includes Crown land, land vested in or owned by a minister, government department, public authority or municipal council and land otherwise used for a public purpose; and
- rezoning in relation to existing growth and infrastructure contribution areas.
Growth and infrastructure contribution areas involves land zoned for urban use and development in the municipalities of Cardinia, Casey, Hume, Melton, Mitchell, Whittlesea and Wyndham. A one-off contribution is made in these zones by developers to provide infrastructure in Melbourne's expanding fringe suburbs.
When does the tax apply?
The WGT will be imposed on amendments to planning schemes that take effect on or after 1 July 2023. Importantly, transitional arrangements will apply for certain contracts, option arrangements and proponent-led rezonings that were underway when the windfall gains tax was announced on 15 May 2021.
Situations will arise where Victorian taxpayers become liable for the WGT in addition to other taxes imposed on the same gain (i.e. capital gains tax which is generally payable on a capital gain made by a taxpayer).
It remains to be seen whether similar legislation will be introduced in other States and Territories across Australia, noting that New South Wales is currently considering legislation that will introduce a new 'development contribution regime' payable by landowners who benefit from land value uplift as a consequence of a rezoning. In particular, how will these types of reform impact the property development and housing industries, as it will be an added expense for property developers. In the meantime, McCullough Robertson's Tax team can assist with any queries relating to the introduction of windfall gains tax in Victoria.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.