Windfall Gains Tax Victoria: What You Need to Know
If you’re a landowner in Victoria, you may have heard about the recent changes to windfall gains tax. From July 1, 2023, landholders may be subject to this new tax if their land is rezoned.
Here’s what you need to know:
What is the Windfall Gains Tax?
Starting from July 1, 2023, the Windfall Gains Tax (WGT) will be applied to landholders in Victoria. This tax target is the increased value of a property when it is rezoned as a ‘Windfall Gain’.This tax is designed to capture the value of windfall gains generated from government rezoning and redistribute it to the wider community. The tax will be calculated based on the increase in the land’s value resulting from the rezoning; however the timing of payment will depend on you.
It is aimed at ensuring that the community benefits from the value uplift created by government decisions and investments by helping to fund infrastructure and other public services. It is generally regarded as a form of wealth redistribution from those who have gained from external factors to the broader community.
Who is Affected by the Tax and How is it Calculated?
This tax applies to landholders who experience a significant increase in the value of their land. Regional areas such as Gippsland, particularly developing areas like Sale and Wonthaggi where rezonings are currently taking place, are likely to be impacted for those looking to sell. The tax is calculated on the difference between the original and current value of the land and is payable by the owner of the land or property at the time of the windfall gain.
The tax is based on the increase between the prior Capital Improved Value (CIV) and a new CIV assessed as of the date of the rezoning, but subject to a host of exemptions/reductions.
Reductions are generally designed to reduce WGT liability for house lots, but to capture the majority of the uplift where a farm is rezoned.
The tax payable will be:
- where the increase is over $100k, 62.5% of the increase over $100k; or,
- where the increase is over $500k – 50% of the increase.
For example, if the value of a property increases by $1 million due to government rezoning, the windfall gain would be $500,000.
Payment can be deferred by up to 30 years or until the property is sold/transferred, but interest will accrue on the deferred tax.
It is important to note that the Windfall Gain Tax is payable when the land is sold, and any unpaid tax liability is secured by a charge against the land. This charge against the land means that if the tax isn’t paid off when the land is sold, the purchaser becomes liable for the tax.
When Do I Need To Pay Windfall Gains Tax
If you are a landowner in a regional area where zoning changes may be occurring, it is important to seek professional advice to understand how these changes may affect you. A key step to consider is being aware of when a rezoning is underway/completed.
Compliance with the Windfall Gains Tax is a legal requirement, and failure to comply may result in significant penalties.
Windfall Gain Tax liability will subsequently be assessed, and the State Revenue Office will send a notice to the landowner advising of the WGT. That notice needs to be actioned promptly as they have 30 days to pay or defer the tax, and 60 days to initiate a dispute if they disagree with the calculation. Timing is everything and it’s critical to determine your actions before this time elapses, with professional assistance of course.
Is it possible to challenge the valuations used to determine the value uplift of my land for windfall gains tax assessment?
Yes, you can object to the valuations used for both pre-rezoning (CIV1) and post-rezoning value of your land (CIV2). To do so, you need to submit a written objection to the State Revenue Office You need to specify the grounds for your objection within 2 months of receiving your Windfall Gains Tax assessment. The objections that are lodged on time will be forwarded to the Valuer-General for determination.
It is important to note that even if there is an undetermined objection, the land can still be sold. However, the liability for Windfall Gains Tax remains with the landowner at the time of rezoning, and the taxable amount may vary depending on the outcome of the objection. It’s important to note that tax is still due and payable while an objection is in progress, however, the State Revenue Office is required to refund any overpaid tax.
If the Windfall Gains Tax is not paid by the completion of the sale, the vendor remains liable for the tax. Purchasers can obtain a property clearance certificate to check for any Windfall Gains Tax liability associated with the land being sold.
Help Navigating the Windfall Gains Tax
The new changes introduced by the Windfall Gains Tax in Victoria can be complex and confusing. Many people may find it overwhelming to navigate the legal and financial aspects of this new tax, especially in developing regional towns such as Warragul or Traralgon. As a landholder, you may be unsure about your rights and obligations under the new law, or you may need help with the valuation process or lodging an objection.
If you are facing these challenges, it is essential to seek legal support from experts who practice in property and taxation law. Pathfinder Law is a law firm that can help you navigate through the new changes and provide you with the necessary legal advice and support to ensure that you are compliant with the new tax law.
Our team of experienced lawyers can assist you with various legal matters related to the Windfall Gains Tax. If you are looking at buying or selling and want to understand how to manage the sale and assistance with the Windfall Gains Tax, contact us here.