The Windfall Gain Tax (WGT) is a tax introduced by the Victorian State Government in Australia, effective from 1 July 2023, intended to capture the increase in the value of lands resulting from the government’s action of rezoning. The WGT is a tax that applies to increases in land value resulting from changes to the local government’s planning rules.
Who is responsible for paying Windfall Gain Tax?
The WGT will be paid by the owners who experience an increase in land value resulting from a rezoning event that triggers the tax, and only if the taxable value uplifts all their land subject to that rezoning is above $100,000.
When is the windfall gain tax paid?
The WGT needs to be paid when a landowner experiences a taxable value uplift due to a rezoning of land. If the taxable value uplift is 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. If the taxable value uplift is $500,000 or more, a tax rate of 50% will apply to the total uplift. No tax is payable if the taxable value uplift is between $0 and $100,000.
Landowners liable to pay the WGT may elect to defer payment of up to 100% of the tax for up to 30 years or until a dutiable transaction in respect of the land (e.g., sale event).
However, interest is payable on deferred windfall gains tax based on the 10-year bond rate applied from time to time.
How is the Windfall Gain Tax calculated?
The WGT is calculated based on the difference between the value of the land before it was rezoned and the value of the land after it was rezoned. This difference is called the “value uplift” and is based on the value of the land and any buildings on it. The value of the land is determined by a government agency called the Valuer-General Victoria, which assesses the value of the land before and after the rezoning. Therefore, the WGT is only calculated on the value uplift and not on any increase in value that may have occurred before or after the rezoning.
Exemptions and exclusions for the Windfall Gain Tax in Australia:
- Residential land exemption:
This includes land with a building primarily designed for residential purposes and land used for commercial farmland with a residence. The land must be primarily used for residential purposes, except for primary production land with a residence, which only needs to meet the definition of primary production.
This includes land used primarily for cultivation, maintenance of animals or poultry, apiculture, commercial fish farming, and cultivation of plants, seedlings, mushrooms, or orchids for sale.
- Vacant land:
There is no exemption for vacant land, and land with only a movable home on it; is not considered residential land.
- Charitable and university land:
Land owned by a charity and used for charitable purposes can be eligible for a waiver of WGT if it continues to be used for charitable purposes for 15 years after rezoning. Similarly, land owned by a university and used for charitable purposes can be exempt from the WGT if the revenue is used to further the university’s charitable purposes and a declaration is provided to the Commissioner.
Here are some potential advantages and disadvantages of the WGT.
Advantages:
enerates revenue for the government: The WGT can provide additional revenue for the government that can be used for public services and infrastructure.
Encourages developers to build more affordable housing: The WGT may encourage developers to build more affordable housing as it exempts residential land with buildings affixed to them designed primarily for residential purposes.
Prevents exploitation of planning changes: The WGT discourages speculation on land values, prevents the exploitation of planning changes, and ensures that the community shares in the uplift in land value due to rezoning.
Encourages the development of underutilised land: The WGT can encourage the development of underutilised land by making it more financially attractive to developers.
Disadvantages:
Discourages investment in property: The WGT can discourage investment in property as it increases the cost of purchasing and developing land.
May reduce the supply of new housing: The WGT may reduce the supply of new housing as developers may be deterred from developing land due to the increased costs.
May be complex and difficult to administer: The WGT may be complex and difficult to administer, and the valuation process may be difficult to manage and could lead to disputes.
May be unfair to property owners: The WGT may be seen as unfair to property owners who may have invested in land with the expectation of future rezoning, only to find that they are required to pay a significant amount of tax on any increase in value.
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