As part of the Victorian Budget 2021/22, the Victorian Government announced a new windfall gains tax as a ‘value capture mechanism’ in respect of gains made by landowners arising from increases in land value following rezoning of the land. Few details have been announced to date and legislation has not been introduced to parliament.

More recently, the Government has indicated that it remains committed to introducing some form of windfall gains tax (WGT), with further details expected to be announced in October. To date, the government has provided the following details:

  • the tax will apply to rezoning of land that occurs on or after 1 July 2022;
  • the tax phases in for gains over $100,000, with a top tax rate of 50% applying to gains above $500,000;
  • land subject to the Growth Areas Infrastructure Contribution will be exempt from the tax; and
  • rezoning between zone sub-categories will not be subject to the tax.

Further details regarding classification of the WGT and whether pre-existing projects will be exempt from the WGT have not been provided.

There has been some limited consultation with the property sector regarding the tax. However, a number of key questions currently remain open. These include:

  • whether transitional provisions will operate to exempt pre-existing projects from the WGT;
  • potential matters of equity where a rezoning is not sought by the landowner but the landowner is caught up with a rezoning for a whole area;
  • whether holding costs and costs incurred during the rezoning process will form part of the ‘windfall gain’ calculation;
  • the valuation mechanism which may be adopted and potential timing differences (and possible implications) between the trigger event and the valuation exercise, noting that the State Revenue Office and Victorian Government have historically been slow with various valuations processes;
  • whether payment of the WGT can be deferred in certain circumstances (e.g. until sale of the land following development to ensure the landowner can pay the tax) and the possible implications of deferral;
  • whether a WGT liability will be registered on title (in a similar way to GAIC liabilities) and also the interface with financier security registered on title (if any);
  • the interaction between the WGT and income tax/capital gains tax calculations; and
  • whether there will be any exemptions to the WGT, such as for affordable housing, build to rent, development for charitable or not for profit undertakings or for extractive industries where the primary acquisition and use was for extractive purposes with significant remediation obligations are imposed on the landowner.

The Property Council of Australia and other industry bodies have described the WGT as a ‘tax on investment’, raising concerns that the tax will discourage regional growth, worsen housing affordability and depress employment opportunities in the property sector. Although the Victorian Government announced that the WGT would take effect on 1 July 2022, it is not certain that this timing will be met given the significant complexities that that need to be worked through in order for draft legislation to be produced. Nonetheless, we expect that draft legislation will be issued in the near future.

If you have any questions on the proposed WGT, please phone or email the key contacts below.

Jane Hodder
Jane Hodder
Partner, Real Estate, Melbourne
+61 3 9288 1692
David Sinn
David Sinn
Partner, Real Estate, Melbourne
+61 3 9288 1509