The Windfall Gains Tax (WGT) was first announced by the Victorian Government in the 2021-22 State Budget.
In summary, the WGT is a tax for landowners that may experience a significant increase in market value of land holdings due to planning decisions to rezone land (see HLB Mann Judd’s 2021 – 22 Victorian Budget update).
The proposed tax met some initial controversy as there was no previous consultation prior to the State Budget announcement. The 2021-22 State Budget however stated the Government would introduce legislation in a separate bill later in the year following industry consultation and feedback.
The Windfall Gains Tax and State Taxation and Other Acts Further Amendment Bill 2021 has now been introduced into Parliament. Below is a summary of what you need to know.
What is the WGT?
The WGT applies to uplifts in land value resulting from amendments to planning schemes within the meaning of the Planning and Environment Act 1987.
WGT applies when the taxable value uplift of all land owned by an owner or group that is rezoned by the same planning scheme amendment is above $100,000.
How is the uplift and tax amount calculated?
Taxable value uplift is the difference in the capital improved value of the land before and after the rezoning takes effect less any deductions.
The former value is drawn from the most recent valuation in force for the land under the Valuation of Land Act 1960 while the latter is determined through a supplementary valuation certified by the Valuer-General.
The windfall gains tax only applies to taxable value uplifts in excess of $100,000.
Where the taxable value uplift is more than $100,000 but less than $500,000, the rate is 62.5% of that part of the taxable value uplift that exceeds $100,000.
Where the taxable value uplift is $500,000 or more, the rate of windfall gains tax is a flat 50% of the taxable value uplift.
Grouping and aggregation provisions are applicable which means related corporate groups, trusts and beneficiaries of discretionary trusts that may have had patterns of historical consistent distributions will need to be reviewed.
Rights of objection are provided to the valuations used in the calculation of windfall gains tax.
When will it apply?
The windfall gains tax comes into operation from 1 July 2023 and in relation to amendments to planning schemes that take effect on or after that date.
What are the exclusions?
The key exclusions / exemptions are as follows:
- A small number of rezonings are excluded from the scope of the tax, such as rezonings relating to Growth and Infrastructure Contribution areas and rezonings to public land zones.
- An exemption from windfall gains tax applies where the owner of land can establish to the Commissioner’s satisfaction that the owner requested the amendment before 15 May 2021 through a local council. The request must have been created and registered in the Amendment Tracking System by the council before 15 May 2021, and the owner of the land had incurred costs above a threshold amount in relation to relevant work for the rezoning or relevant costs to support consideration of the rezoning.
- An exemption from windfall gains tax also applies where the owner of land can establish to the Commissioner’s satisfaction that the owner requested the Minister for Planning to make the amendment before 5 May 2021. It must be evidenced that the Minister agreed before 15 May 2021 to prepare the amendment, and the owner of the land had incurred costs above a threshold amount in relation to relevant work for the rezoning or relevant costs to support consideration of the rezoning.
- Up to 2 hectares of residential land (including primary production land with a residence) will receive an exemption from the windfall gains tax where it is rezoned by the same planning scheme amendment. This is irrespective of whether the residential land is the primary residence and pro-rata calculation of the WGT will apply if the land is above 2 hectares.
- In addition, charities will not pay any windfall gains tax 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.
- An exemption is also provided in relation to rezonings to correct obvious or technical errors in the Victoria Planning Provisions or a planning scheme.
- An exemption is also available where the sale of land or option for sale has been negotiated prior to the announcement of the windfall gain tax on 15 May 2021 but completes after a WGT event. In relation to an option, the terms of the contract of sale must have been settled at the time the option was granted.
When does the WGT need to be paid?
Owners of land liable to pay the windfall gains tax may elect to defer payment of up to 100% of the tax for up to 30 years or until a dutiable transaction in respect of the land (e.g. sale event).
However interest is payable on deferred windfall gains tax based on the 10-year bond rate applying from time to time.
Other practical considerations
A key issue with the WGT is that it is a tax imposed by the Victorian State Government. Landowners may also have income tax / CGT liability arising given this is a tax imposed by the Federal Government.
Therefore a key tax planning consideration is to actively plan and calculate total tax that may arise from both Federal and State taxes including review of relevant concessions such as the main residence CGT exemption, small business CGT concessions and whether the WGT may be added as tax cost base or other relief for income tax / CGT purposes.