During the 2021 Victorian State Budget, the Government announced that it would introduce a ‘windfall gains tax’ (WGT) that would apply to large windfall gains associated with planning decisions to rezone land.
The Government had advised that it would be consulting with industry prior to enacting legislation, and it was anticipated that there would be some moderation of the announced measures.
Following this consultation, on 12 October 2021, the controversial Windfall Gains Tax and State Taxation and Other Acts Further Amendment Bill 2021 (the Bill) was introduced into Victorian Parliament.
The WGT will commence on 1 July 2023, having been pushed back from its initial planned commencement date of 1 July 2022.
The WGT will be payable by the owner of the land when a liable rezoning (WGT event) occurs. This will occur when the rezoning decision results in an increase in the value of the land (taxable value uplift) that is above $100,000.
The taxable value uplift is the difference in the capital improved value of the land before and after the rezoning takes effect, less any deductions.
Where a landowner has multiple properties and related companies and trusts are grouped together, WGT will be assessed on the aggregate of all properties held by the individual or grouped entities.
A small number of rezonings are excluded from the scope of WGT, such as a rezoning relating to the GAIC areas and a rezoning to public land zones.
The State Revenue Office (SRO) will issue WGT assessments to landowners, which must be paid by the due date unless a deferral election is made.
How much WGT is payable?
The WGT will apply according to the rates set out below:
|Taxable value uplift||Tax payable|
|$0 – $100,000||$0|
|$100,001 – $499,999||62.5% of that part of the uplift that exceeds $100,000|
|$500,000 or more||50% flat rate to the total uplift|
For example, if land initially valued at $2,000,000 is rezoned, resulting in an increased value of $5,000,000 with no deductions, WGT is approximately $1,500,000.
Are there any exemptions?
The Bill proposes several exemptions from WGT, including:
- Residential land – up to two hectares of residential land (including primary production land with a residence) will receive an exemption, regardless of whether it is a principal place of residence.
- Primary production land with a residence on it that can lawfully be used for residential purposes is residential land (notwithstanding that the primary use of the land is primary production). Accordingly, any primary production land that contains a home on the land will be exempt from WGT up to two hectares. However, adjoining land on a separate title used solely for primary production will not be eligible for this exemption, even if it forms part of one farm.
- Land used for charitable purposes – charities will not pay any WGT on land they own that has been rezoned, so long as the land is used and occupied by a charity exclusively for charitable purposes for 15 years after the rezoning.
- Negative value uplift – if a WGT event results in a negative value uplift on land, WGT is not imposed on the event that consisted of the original rezoning. In that case, the SRO must reassess WTG on the original event and refund any tax and interest paid.
- Correction of errors – an exemption is also provided in relation to rezoning to correct obvious or technical errors in the Victoria Planning Provisions or a planning scheme.
Can payment of WGT be deferred?
A landowner may elect to defer payment of WGT. Any election must be made before the day on which the tax is payable under the WGT assessment.
The deferred WGT will become payable on the earlier of:
- a dutiable transaction occurs in relation to the land;
- a relevant acquisition in respect of the landholder who is the owner of the land; or
- 30 years after the WGT event.
Where WGT is deferred, interest will accrue on the deferred WGT.
Certain excluded dutiable transactions will not cause a deferral to cease; if an excluded transaction occurs, the deferral arrangement will continue. These excluded transactions include a transfer to a legal personal representative of a deceased, the acquisition of an economic entitlement, and the transfer of the land for no consideration where the transferee elects to assume the WGT liability and any accrued interest.
Any WGT that is not deferred must be paid by the due date stated in the notice of assessment.
Beware: if any non-deferred WGT is not paid by the due date, the whole of the WGT liability becomes immediately payable, as if an election had never been made.
The Bill provides some transitional relief for contracts, option arrangements and proponent-led rezonings that had commenced prior to 15 May 2021.
In particular, WGT will not apply where:
- a contract had been negotiated prior to 15 May 2021 and completed after 1 July 2023, and a WGT event occurs;
- options were entered into before 15 May 2021 and will not be exercised, or exercised but not completed, before 1 July 2023 and a WGT event occurs (this exemption only applies if the terms of the sale contract had been settled at the time of grant of the option);
- in respect of a proponent-led rezoning, the owner can establish that they requested the amendment before 15 May 2021 and the request was registered in the Amendment Tracking System by the council before 15 May 2021 (or the Minister agreed before 15 May 2021 to prepare the amendment).
Do I have the right to object against a windfall gains tax assessment?
Taxpayers have the right to object to the valuations on which the assessment for WGT is based within two months of receiving the notice of assessment.
The proposed legislation is onerous, and landowners will need to ensure that where they do not have funds to pay WGT, they act promptly in electing to defer WGT. Any subsequent transaction concerning the property will need to be carefully considered to ensure it will not result in the WGT being immediately payable.
Where land is held as a capital asset, it is arguable that the payment of WGT should form part of the cost base of the land, clearly being a cost of owning the Capital Gains Tax asset. This should, ultimately, result in a lower capital gains tax liability upon the eventual sale of the land. It remains to be seen how the Australian Taxation Office will administratively approach this issue, so watch this space.
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