From 1 July 2023, a windfall gains tax applies to land that is subject to a government rezoning resulting in a value uplift to the land of more than $100,000. In determining the value uplift, all land owned by the person or group and subject to that rezoning is taken into account.
What is Rezoning?
A zone means a zone referred to in clauses 32 to 37 of the Victoria Planning Provision (“VPP”).
A rezoning is 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. Accordingly, for the purpose of windfall gains tax, changes between schedules within the same zone are not a rezoning e.g., not a windfall gains tax event. For example, a change from Neighbourhood Residential Zone Schedule 1 to Residential Growth Zone Schedule 2 is captured, while a change from Neighbourhood Residential Zone Schedule 1 to Neighbourhood Residential Zone Schedule 2 is not captured.
The taxable value uplift is the difference in the capital improved value (“CIV”) of the land before and after the rezoning takes effect. The Valuer-General Victoria is responsible for determining the value of the land before and after a rezoning.
The windfall gains tax provisions allow the Government to prescribe deductions that can reduce the taxable value uplift; however, at this stage, the Government has decided not to prescribe any allowable deductions.
Rate of Windfall Gains Tax
For a rezoning of land that results in a taxable value uplift:
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- More than $100,000 but less than $500,000: the tax will apply at a marginal rate of 62.5% on the uplift above $100,000.
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- $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 group and subject to that rezoning is taken into account.
Exemptions and Exclusions from Windfall Gains Tax
There are a number of exemptions or exclusions from the windfall gains tax, including:
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- residential land exemption;
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- land entitled to a transitional exemption from windfall gains tax; and
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- land rezoned to or from the Urban Growth Zone (“UGZ”) within the Growth Areas Infrastructure Contribution (“GAIC”) area;
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- charitable and university land;
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- land rezoned to Public Land Zones;
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- land rezoned to correct an obvious or technical error in the VPP or a planning scheme; and
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- land rezoned to a Rural Zone (other than the Rural Living Zone).
Residential Land Exemption
For each planning scheme amendment that rezones land, up to 2 hectares of ‘residential land’ owned by the same owner or group will be exempt from the windfall gains tax.
For the purposes of windfall gains tax, residential land means:
1.land that has a building affixed to it, which:
a. is designed and constructed primarily for residential purposes; and
b. may lawfully be used as a place of residence;
2. primary production land (generally commercial farmland) which has a building affixed to the land, which:
a. is designed and constructed primarily for residential purposes; and
b. may lawfully be used as a place of residence;
3. land on which a residence is being constructed or renovated, where the land previously had a residential dwelling affixed:
a. the land must have been capable of being lawfully used as a place of residence before the commencement of the construction or renovation; or
b. there was a resident that was uninhabitable on the land.
For the exemption to apply, the Commissioner must be satisfied that the land, as a whole, is primarily used for residential purposes unless it is primary production land with a residence.
For primary production land with a residence, it is not necessary that the land be used primarily for residential purposes. However, the farming activity must meet the definition of primary production, which generally requires a commercial farming activity (e.g., cultivation for the purpose of selling the produce of cultivation, or maintenance of animals for the purpose of selling them or their natural increase or bodily produce).
Land used for primary production means land used primarily for:
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- cultivation for the purpose of selling the produce of cultivation (whether in a natural, processed or converted state);
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- the maintenance of animals or poultry for the purpose of selling them or their natural increase or bodily produce;
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- the keeping of bees for the purpose of selling their honey;
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- commercial fishing, including the preparation for commercial fishing or the storage or preservation of fish or fishing gear; or
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- the cultivation or propagation for sale of plants, seedlings, mushrooms or orchids.
Vacant land is not eligible for the exemption. Land is not considered residential land if the only residence on it is a caravan or other movable home on the land.
Land entitled to a Transitional Exemption from Windfall Gains Tax
Arrangements entitled to a transitional exemption are:
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- some rezonings which were underway before the announcement date of 15 May 2021; and
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- rezonings of land where a contract of sale or option arrangement was entered into before 15 May 2021.
Land Rezoned to or from the Urban Growth Zone within the GAIC Area
Rezonings to and from the UGZ within the GAIC area are exempt from the windfall gains tax, as these properties are already subject to GAIC.
Charitable and University Land
A waiver is also available for land owned by a charity if the land is used and occupied by a charity exclusively for charitable purposes for 15 years after the rezoning.
Land that is owned by a charity and is used and occupied by a charity exclusively for charitable purposes will be eligible for a waiver of the windfall gains tax, subject to the land continuing to be used and occupied exclusively for charitable purposes for 15 years continuously after the rezoning.
The waiver uses a definition for charitable land which is similar to the test in the charity exemption for land tax. The definition of a charity will be based on the common law definition of a charity.
An exemption from windfall gains tax is also available for land owned by a university that is rezoned by a windfall gains tax event.
Land Rezoned to Public Land Zones
The rezoning of land to ‘Public Land Zones’ is excluded from the windfall gains tax.
Land Rezoned to correct an obvious or technical error in the VPP or a planning scheme
The rezoning of land to correct an obvious or technical error in the VPP or a planning scheme is excluded from the windfall gains tax.
To come within this exemption, the rezoning must be made pursuant to section 20A of the Planning and Environment Act 1987.
Land Rezoned to a Rural Zone (other than the Rural Living Zone)
On 20 May 2022, the Treasurer of Victoria, Tim Pallas MP, made a declaration of excluded zones under section 3(2) of the Windfall Gains Tax and State Taxation and Other Acts Further Amendment Act 2021.
According to that declaration, rezonings to the following zones are excluded rezonings:
GWZ — Green Wedge Zone.
GWAZ — Green Wedge A Zone.
RCZ — Rural Conservation Zone.
FZ — Farming Zone.
RAZ — Rural Activity Zone.
Who Pays Windfall Gains Tax?
The owner of the land that is subject to rezoning pays the windfall gains tax.
Grouping and aggregation provisions can apply so that the $100,000 threshold applies only once to properties owned by the same owner or group of owners and rezoned under the same planning scheme amendment.
When does Windfall Gains Tax have to be Paid?
Owners of land liable to pay windfall gains tax will be issued with a windfall gains tax assessment with a due date for payment.
They will have the option to defer payment of all or some of their windfall gains tax liability until the next dutiable transaction (or relevant acquisition) occurs or 30 years after the rezoning event, whichever occurs first. Certain dutiable transactions and relevant acquisitions will not cease deferral.
Once deferral ceases, full payment must be made within 30 days.
Who Administers the Windfall Gains Tax?
Windfall gains tax is administered by the Commissioner of State Revenue as a taxation law under the Taxation Administration Act 1997.
Unpaid or deferred windfall gains tax will constitute a first charge on the land.
Property clearance certificates can be requested. These will show any unpaid windfall gains tax liabilities on land or give notice of any undetermined liabilities. Certificates can be requested by an owner, a genuine purchaser or a mortgagee of land.
If you have any questions about windfall gains tax, please contact us on 5303 0281 or at info@centralhighlandsconveyancing.com.au.
The information on this website is of a general nature only. It is not, nor is it intended to be legal advice. You should consult a lawyer for individual advice about your particular circumstances.
Liability limited by a scheme approved under Professional Standards Legislation.
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