From 1 July 2023, windfall gains tax applies to land that is rezoned resulting in a taxable value uplift to the land of more than $100,000.
Not all land rezoned is subject to this tax — a range of exemptions and exclusions apply, including an exemption for ‘residential land’.
Residential land exemption
For each planning scheme amendment that rezones land, up to 2 hectares of ‘residential land’ owned by the same owner or group is exempt from the windfall gains tax.
If you own more than 2 hectares of residential land that is rezoned by the same planning scheme amendment, only 2 hectares is exempt from windfall gains tax. Residential land in excess of 2 hectares will still be subject to the tax, calculated based on an adjusted taxable value uplift of the land. The value uplift of the whole land will be obtained and then its value apportioned by reference to size. The landowner does not select which 2 hectares should be exempted.
‘Residential land’ has a particular meaning and can include primary production land with a residence on it.
Understanding 'Residential land'
For the purposes of the windfall gains tax, residential land means:
- land that has a building affixed to it, which:
- is designed and constructed primarily for residential purposes, and
- may lawfully be used as a place of residence.
- land on which a residence is being constructed or renovated, where the land previously had a residential dwelling affixed:
- the land must have been capable of being lawfully used as a place of residence before commencement of the construction or renovation, or
- there was a residence that was uninhabitable on the land.
- primary production land (generally commercial farmland) which also has a building affixed to the land, which:
- is designed and constructed primarily for residential purposes, and
- may lawfully be used as a place of residence.
For the exemption to apply, the Commissioner must be satisfied that the land, as a whole, is primarily used for residential purposes, unless it is primary production land which also has a residence.
Land used for primary production
For primary production land with a residence, it is not necessary that the land be used primarily for residential purposes.
However, the farming activity must meet the definition of primary production, which generally requires a commercial farming activity (e.g. cultivation for the purpose of selling the produce of cultivation, or maintenance of animals for the purpose of selling them or their natural increase or bodily produce).
Land used for primary production’ means land used primarily for:
- cultivation for the purpose of selling the produce of cultivation (whether in a natural, processed or converted state)
- the maintenance of animals or poultry for the purpose of selling them or their natural increase or bodily produce
- the keeping of bees for the purpose of selling their honey
- commercial fishing, including the preparation for commercial fishing or the storage or preservation of fish or fishing gear, or
- the cultivation or propagation for sale of plants, seedlings, mushrooms or orchids.
Vacant land
Vacant land is not eligible for the exemption.
Land is not considered residential land if the only residence on it is a caravan or other movable home on the land.
Residential land exemption — examples
Example 1
You have 5 hectares of residential land that is rezoned by a planning scheme amendment.
2 hectares, or 40% of the land, will be exempt from the calculation of windfall gains tax.
Therefore:
- 40% of the value uplift is exempt
- your liability for the windfall gains tax will be calculated on 60% of the taxable value uplift of the land.
How the exemption applies to multiple titles — examples
Example 2
You are the owner of 1500 square metres (0.15 hectares) of land that is rezoned by a planning scheme amendment. The total value uplift of your land is sufficient to generate a windfall gains tax liability.
Your land comprises 3 suburban residential homes, each of which has its own title, and each is only used for residential purposes.
The rezoning of this land would be exempt from the windfall gains tax as:
- all land is residential land (as each title has a habitable dwelling)
- the total area is under 2 hectares.
Example 3
You own land that is rezoned by a planning scheme amendment and the total value uplift of this land is sufficient to generate a windfall gains tax liability.
Your land comprises:
- 2 suburban residential homes, each with its own title, on 800 square metres, plus
- a corner shop with a small living space at the rear, on a separate title, on 400 square metres.
The corner shop is not considered residential land, and is therefore not exempt, because:
- the building is not designed and constructed primarily for residential use - it has been primarily designed for commercial purposes (as a shop)
- the land is not used primarily for residential purposes - it is primarily used for retail.
The land comprising the two suburban residential homes (800 square metres) is exempt from the calculation of your windfall gains tax liability, as:
- the land is residential land
- the total is less than 2 hectares.
As such, you will be liable to pay a windfall gains tax liability on the taxable valuable uplift relating to the land comprising the corner shop.
Example 4
You own 24,000 square metres (2.4 hectares) of land that is rezoned by a planning scheme amendment.
The total value uplift of this land is sufficient to generate a windfall gains tax liability.
Your land comprises:
- 24 suburban residential homes, each with its own title.
As such, 2 hectares of the 2.4 hectares of residential land that you own is exempt from the calculation of the windfall gains tax.
The windfall gains tax liability would therefore be calculated with an 83.33% (2 out of 2.4 hectares) reduction in the total value uplift of the land.
Example 5
You own 800 square metres of land that is rezoned by a planning scheme amendment., and the resulting value uplift of your land is sufficient to generate a windfall gains tax liability.
This land includes a derelict house, which is uninhabitable.
As the dwelling is not habitable, this land is not considered residential land.
Your land is not exempt from the calculation of the windfall gains tax.
How the exemption applies to primary production land — examples
Whether land is primary production land affects how the residential land exemption applies. Not all farmland is considered primary production land.
The following are examples of the way the residential land exemption may work where your rezoned land includes primary production land.
Example 6
You own a farm on a single title of 10 hectares, which includes your home.
Nine hectares of the land is used to grow crops for sale. The land is considered primary production land.
The land is rezoned by a planning scheme amendment, and the total taxable value uplift of your land is sufficient to generate a windfall gains tax liability.
In this case, 2 hectares of this land is exempt under the residential land exemption — as it is primary production land it does not need to be primarily used for residential purposes but must have a residence on it.
It is also not relevant that less than 2 hectares of the land is used for the residence.
In this example, the windfall gains tax liability would be calculated based on a 20 per cent (2 out of 10 hectares) reduction in the total taxable value uplift of the land.
Example 7
You own 6 hectares of land.
- 1 hectare that includes your home (on one title), next to
- 5 hectares of primary production land that is used to grow crops (on a separate title).
The land is rezoned by a planning scheme amendment, and the total taxable value uplift of your land is sufficient to generate a windfall gains tax liability.
The 1 hectare of land that includes your residence is exempt from the calculation of the windfall gains tax.
The 5 hectares of primary production land under a separate title that does not have a residential dwelling is not is not entitled to a residential land exemption.
As such, you will be liable to pay windfall gains tax on the taxable valuable uplift relating to the 5 hectares of primary production land.
Example 8
You own 5 hectares of land, which is rezoned by a planning scheme amendment. The total taxable value uplift of your land is sufficient to generate a windfall gains tax liability.
Your land comprises:
- 1 title, comprising 1 hectare of land that includes your home (residence)
- 1 title, comprising 1 hectare of land that includes another residence
- 2 titles comprising 3 hectares of primary production land, with no residence.
The two titles with residences are only used for residential purposes.
Up to 2 hectares of residential land is exempt from the calculation of the windfall gains tax:
- the land with your home (1 hectare) is exempt
- the land with the other residence (1 hectare) is exempt
- the 3 hectares of primary production land is not exempt: primary production land without a residential dwelling is not entitled to the residential land exemption.
As such, you will be liable to pay windfall gains tax on the taxable valuable uplift relating to the 3 hectares of primary production land.
Example 9
You own 5 hectares of land, which is rezoned by a planning scheme amendment. The total taxable value uplift of your land is sufficient to generate a windfall gains tax liability.
Your land comprises:
a. 1 title comprising 1 .5 hectares of land that includes your home (residence)
b. 1 title comprising 1.5 hectares of land that includes another residence
c. 2 titles comprising 2 hectares of primary production land, with no residences.
The two titles with residences are only used for residential purposes
In this case:
- You have 3 hectares of residential land ('a' and 'b' above). Up to 2 hectares of residential land is exempt from the calculation of the windfall gains tax.
- The 2 hectares of primary production ('c' above) is not exempt: primary production land without a residential dwelling is not entitled to a residential land exemption.
As such, you will be liable to pay windfall gains tax based on:
- a reduced total taxable value uplift of 'a' and 'b' above, with the reduction being 66.67% (2 out 3 hectares), plus
- the total taxable value uplift of the 2 hectares of primary production land ('c' above).
Residential land exemption — frequently asked questions
Do I need to live on the land for it to be eligible for the residential exemption?
No. The residential land exemption will apply to principal places of residence, as well as to investment properties and secondary homes.
If I am building a new home, will that land be exempt from the tax?
An exemption is available for land:
- where a residence is being constructed or renovated at the time the land is rezoned, and
- prior to commencement of the construction or renovation, the land included a residence that was capable of being used for residential purposes or a residence that was uninhabitable.
The land cannot have been vacant land, or land that was never used for residential purposes.
Is mixed-use land eligible for the residential land exemption?
To be eligible for the residential land exemption, the building on the land must be designed and constructed primarily for residential purposes, and lawfully able to be used as a residence. In addition, the land must be used primarily for residential purposes, unless it is primary production land.
Commercial or industrial land with a small dwelling attached will not be exempt if the the building on the land is designed and constructed primarily for commercial or industrial purposes or if the primary use of the land is for commercial or industrial purposes.
The primary use rule does not apply to primary production land that meets the definition of residential land, i.e. primary production land that has a dwelling affixed to it that is capable of being used for residential purposes.
This means primary production land on one title with a dwelling affixed to the land is residential land, even if the majority of that land is used for primary production purposes. Where the land is more than 2 hectares, only 2 hectares will be exempt, consistent with the treatment of other residential land.
Adjoining land on a separate title that does not have a residence affixed is not residential land, even if it forms part of 1 farm owned by the same owner as the primary production land with a residence on it.
Does this exemption apply to commercial residential properties, such as hotels?
Commercial residential premises, such as hotels, residential care facilities, supported residential service and retirement villages are specifically excluded from the definition of residential land and therefore outside the scope of the residential land exemption.
However, a separately owned residence held on a separate title from the other land in the commercial residential premises, residential care facility, supported residential service or retirement will be treated as residential land and therefore within the scope of the residential land exemption. For example, an apartment in a serviced apartment complex that is owned separately to the other apartments used for the service apartment business is residential land.
