Windfall Gain Tax slug: Andrews Government takes half the gain from rezoned land

The windfall gains tax, which comes into operation from 1 July 2023, applies to uplifts in land value resulting from rezoning.

Windfall: A bill to impose a 50 per cent tax on the gains in property values landholders earn from rezoning decisions has hit the Victorian Parliament.

The Andrews Labor Government will take half any landholder’s windfall gain on their property’s value from a rezoning decision, under its new Windfall Gains Tax Bill tabled in parliament this week.

The Bill imposes a 62.5 per cent tax on a gain of more than $100,000 in a property’s value resulting from rezoning, dropping to 50 per cent on windfalls of $500,000 or more.

It will be up to the Valuer-General Victoria to determine values before and after rezoning.

Landholders will be given the option of paying the WGT when the property is rezoned or deferring payment, until the property is sold or subdivided for up to 30 years.

But anyone who defers payment will incur interest charged at the 10-year Treasury Corporation of Victoria rate – currently 1.84 per cent.

The bill also includes “aggregation provisions” that restrict the $100,000 threshold applying only once to properties owned by the same owner or group of owners, shared corporations or trusts, as well as properties rezoned under the same planning scheme amendment.

Up to 2 hectares of residential land (including primary production land with a residence) will receive an exemption from the windfall gains tax where it is rezoned by the same planning scheme amendment.

The Victorian Farmers Federation feared the WGT would be triggered by any rezoning decision, which could have captured normal capital growth in farm land values.

But the Bill excludes shifts from one rural zone to another, meaning a property could be reclassified from farming to rural activity, rural conservation or green wedge zone without triggering the WGT.

However rezoning from farming and to rural residential, residential, commercial or other zones will incur the new tax, if the Bill passes unchanged through the Upper House.

Imposing the WGT will have a huge impact on Victoria’s horticulture sector, who traditionally farmed on the urban outskirts and then cashed out on a rezoning windfall to cover family succession and to re-establish further afield.

Werribee egg producer Brian Ahmed said many families had used the windfall, sometime three-times over, to sell out and move further out as the urban sprawl encroached.

“It’s going to be hard for farmers, who’ve been waiting all their lives to reap the rewards of their land, now that the government is going to take half,” Mr Ahmed said.

Werribee South vegetable grower John Said he was opposed to the bill, but its impact would depend on what stage landholders were at in their lives.

“It also depends on the windfall,” Mr Said said. “Some of these (sales) have been for hundreds of millions.”

Treasurer Tim Pallas told Parliament that “to ensure landowners and purchasers have time to adjust, rezonings that occur on land that is subject to a contract for consideration or option arrangement entered into by 15 May 2021, where the contract or arrangement is yet to settle at the time of the rezoning, excluding development agreements, will not be subject to the WGT.

“Similarly, proponent-led rezonings which were well-progressed and had incurred significant costs when the WGT was announced on 15 May 2021 will not be subject to the tax.”