Windfall gains tax

What is windfall gains tax? 

From 1 July 2023, windfall gains tax applies to all land rezoned by the same planning scheme amendment resulting in a value uplift to the land of more than $100,000. In determining the value uplift, all land owned by the person or group and subject to that rezoning is taken into account.

What is rezoning?

A zone means a zone referred to in Clauses 32 to 37 of the Victoria Planning Provisions (VPP).

A rezoning is an amendment of a planning scheme that causes land to be in a different zone from the zone that it was in immediately before the amendment. 

Accordingly, for the purpose of windfall gains tax, changes between schedules within the same zone are not a rezoning (i.e. not a windfall gains tax event). 

For example, a change from Neighbourhood Residential Zone Schedule 1 to Residential Growth Zone Schedule 2 is captured, while a change from Neighbourhood Residential Zone Schedule 1 to
Neighbourhood Residential Zone Schedule 2 is not captured. 

The taxable value uplift is the difference in the capital improved value (CIV) of the land before and after the rezoning takes effect. The Valuer-General Victoria is responsible for determining the value of the land before and after a rezoning.

The windfall gains tax provisions allow the Government to prescribe deductions that can reduce the taxable value uplift, however, at this stage, the Government has decided not to prescribe any allowable deductions. 

Rate of windfall gains tax

For a rezoning of land that results in a taxable value uplift:

• 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
• $500,000 or more: a tax rate of 50% will apply to the total uplift

In determining the value uplift of land, all land owned by the person or group and subject to that rezoning is taken into account.

Exemptions and exclusions

There are a number of exemptions or exclusions from windfall gains tax:

1. Residential land exemption
2. Land entitled to a transitional exemption from windfall gains tax
3. Land rezoned to or from the Urban Growth Zone within the Growth Areas Infrastructure Contribution (GAIC) area
4. Charitable and university land
5. Land rezoned to Public Land Zones
6. Land rezoned to correct an obvious or technical error in the Victoria Planning Provisions or a planning scheme
7. Land rezoned to a Rural Zone (other than the Rural Living Zone)

More about exemptions and exclusions

Who pays windfall gains tax?

The owner of the land that is subject to the rezoning pays the windfall gains tax.

Grouping and aggregation provisions can apply so that the $100,000 threshold applies only once to properties owned by the same owner or group of owners and rezoned under the same planning scheme amendment.

When does windfall gains tax have to be paid?

The liability for windfall gains tax arises upon the rezoning occurring.

Owners of land liable to pay windfall gains tax will be issued with a windfall gains tax assessment with a due date for payment.

They will have the option to defer payment of all or some of their windfall gains tax liability until the next dutiable transaction (or relevant acquisition) occurs, or 30 years after the rezoning event, whichever occurs first. Certain dutiable transactions and relevant acquisitions will not cease deferral.

Once deferral ceases, full payment must be made within 30 days.

Can windfall gains tax be passed on?

For contracts of sale of land or option agreements entered into on or after 1 January 2024, vendors are prohibited from passing on a windfall gains tax liability to purchasers where the liability was assessed as at the date of the contract of sale of land or option agreement.

This does not apply to contracts of sale of land entered into on or after 1 January 2024 pursuant to the exercise of an option that was granted before 1 January 2024.

For more details on the prohibition, see commonly asked questions and answers.

Who administers windfall gains tax?

Windfall gains tax is administered by the Commissioner of State Revenue (Commissioner) as a taxation law under the Taxation Administration Act 1997 (TAA). 

Unpaid, including deferred, windfall gains tax will constitute a first charge on the land.

Property clearance certificates can be requested. These will show any unpaid windfall gains tax liabilities on a land or give notice of any undetermined liabilities. Certificates can be requested by an owner, a genuine purchaser or a mortgagee of land.