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What you need to know about Victoria’s new ‘Windfall Gains Tax’

Nine Dots Legal

05 • 11 • 21

Authors:
Laszlo Konya, and Ted Vlahos
Categories:
Property Law, Tax Law

Victoria’s new Windfall Gains Tax

What you need to know about Victoria’s new ‘Windfall Gains Tax’

As part of the Victorian Budget 2021/22, a new property tax, the windfall gains tax (WGT), will be applied to land rezoned by a planning scheme decision made on or after 1 July 2023, where the decision results in an increase in the value of the land by $100,000 or more.

According to the Department of Treasury and Finance, a tax on windfall gains associated with a rezoning is an efficient and targeted way of capturing a fair share of these value uplifts for the community. This new tax will contribute to infrastructure and services where the property values increase due to the actions of Government.

The impact for property developers

Despite this, the new tax will narrow the profit margins available to developers who are completing projects that require the re-zoning of land. This is likely to have a flow on effect on consumers of subdivided land as developers are likely to pass on the added cost in an attempt to preserve their profit margins and/or maintain project viability.

What rates apply with the new Windfall Gains Tax?

The rate of WGT will be:

  • 5% of the part of the taxable value uplift that exceeds $100,000 where the taxable value uplift is more than $100,000 but less than $500,000; and
  • a flat 50% of the taxable value uplift where the taxable value uplift is $500,000 or more.

What exemptions apply?

Exemptions from WGT include:

  • residential land under 2 hectares, but does not include commercial residential premises, residential care facilities, supported residential services or retirement villages;
  • where the land is rezoned due to an amendment under the Planning and Environment Act 1987to correct an error in the planning provisions or planning scheme; and
  • where there was a pre-existing contract of sale, option, or rezoning underway before 15 May 2021.

An owner can elect to defer the payment of up to 100% of the WGT, however, interest will accrue on the deferred WGT amount. This election must be made in writing to the Commissioner and must be made before the day on which the WGT is payable.

If you require any advice in relation to the WGT, please contact us.

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