From 1 July 2023, the Windfall Gains Tax (WGT) will apply where a rezoning of land occurs, and that rezoning results in an uplift in value of the land by more than $100,000 (WGT Event).
The origins of the tax stem from legacy events such as the rezonings which occurred in Fisherman’s Bend and the perception that those landowners experienced ‘windfall gains’. The stated policy objectives of the WGT is that it aims to capture the uplift value or profit, which occurs as a result of a rezoning, and to ensure this benefit is “shared with the community”.
The WGT is forecast to collect $40 million in FY2023-24, $59 million in FY2024-25 and $84 million in FY2025-26. These are arguably modest collections in the context of the Growth Areas Infrastructure Contribution (GAIC) which is expected to derive $328 million in FY2023-24, $336 million in FY2024-25 and $344 million in FY2025-26.
For colleagues working within the transaction space, the WGT has been on the horizon for some time, particularly in respect to transactions which are subject to long term settlement periods. It remains to be seen whether the changes in land values will result in the uplifts in taxation revenue anticipated by the Government. One can hope that the alure of the contribution will improve the timeframe for the processing of planning scheme amendments.
What is a rezoning?
While the term rezoning is familiar to planning professions, one of the regular questions posed to me by other advisers, such as accountants, is “what constitutes a rezoning?”, and “how would I know if my land (or my client’s land) is subject to a rezoning?”. The input of a planning professional will be critical in determining whether a WGT event will arise. Proponents considering pursuing a change to the scheme will need to consider WGT in their overall strategy. I query whether this might prompt the pursuit of alternative strategies, for example the use of an incorporated document, to avoid a rezoning.
Rezoning is defined in the tax legislation as “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”. Zone means “a zone under a planning scheme”.
The following rezonings are Excluded Rezonings.
- a rezoning between schedules in the same zone; or
- a rezoning that causes land to be brought within the contribution area within the meaning of section 201RC of the Planning and Environment Act 1987; or
- the first rezoning after 1 July 2023 of land that was in the contribution area within the meaning of section 201RC of the Planning and Environment Act 1987 immediately before that date; or
- a rezoning that causes land that was not in a public land zone to be in a public land zone; or
- a rezoning that causes land that was in a public land zone to be in a different public land zone; or
- a rezoning that causes land to be in a zone declared under subsection (2)(a) to be an excluded zone; or
- a rezoning of land that, immediately before the rezoning, was in a zone declared under subsection (2)(b).
It is worth noting that a number of these Excluded Rezonings carve out land to which GAIC applies, thereby avoiding a double-dipping.
What is payable on account of WGT?
WGT is calculated by reference to the difference in the capital improved value (CIV) of the land with and without the rezoning, both as at 1 January preceding the rezoning.
Source: Department of Treasury and Finance Factsheet - Windfall Gains Tax
The Valuer General Victoria will be responsible for determining the value of land before and after a rezoning.
It remains unclear as to how valuers, and the Valuer General Victoria, will grapple with calculating a change in land value attributable solely to a rezoning but as at the date before the rezoning. Planning Scheme Amendments are generally foreshadowed and processed over long time periods. It is unclear how changes in the market over the processing time of the amendment will impact upon value which is attributed to the uplift in the with and without rezoning scenarios.
In terms of the WGT liabilities, for a rezoning of land that results in a value uplift:
- of more than $100,000 but less than $500,000 the tax will apply to marginal rate of 62.5% on the uplift above $100,000.
- of $500,000 or more a tax rate of 50% will apply to the total uplift.
In determining the value uplift of land, all land owned by the person or groups of companies and/or trusts and subject to that rezoning will be taken into account.
Exemptions
The WGT Act provides a number of exemptions:
- residential land up to 2 hectares;
- rezonings which seek to correct obvious or technical errors in planning provisions or the planning scheme;
- land which is subject to a contract of sale or option before 15 May 2021 and where settlement has not occurred before the windfall gains tax event;
- rezonings underway before 15 May 2021:
- this requires registration of the amendment tracking system before 15 May 2021; or
- before 15 May 2021 the owner of the land—
- approached the Council to request the rezoning; and
- paid for, was liable to pay for, or had otherwise performed or procured relevant work in relation to the rezoning; or
- the total value of relevant work and relevant costs was not less than the threshold amount.
- charities and university land (in certain circumstances only);
- land rezoned to a rural zone.
Who is responsible for the WGT and when does it need to be paid?
The Landowner will be liable to pay the WGT. The liability can be deferred, either partially or in full, until the next dutiable event (or relevant acquisition in a landholding company or trust) occurs or thirty years after the rezoning event, whichever occurs first.
Interest will accrue over the deferral period at the 10-year Victorian Treasury bond rate. Once deferral ceases, full payment must be made within thirty days.
Source: Department of Treasury and Finance Factsheet - Windfall Gains Tax
