Victorian upper house passes the Windfall Gains Tax. What does this mean for land and property costs?
The Windfall Gains Tax (WGT) was first announced by the Victorian government in May 2021. On 20th November the ‘Windfall Gains Tax and State Taxation and Other Acts Further Amendment Bill 2021’ was passed into Parliament. The WGT is scheduled to come into effect from 1st July 2023, with widespread concern that it will lead to an increase in land costs and resulting housing shortages in regional areas.
On the go? Here’s 30 seconds of take outs:
- The Windfall Gains Tax (WGT) is due to commence on 1st July 2023.
- The tax is payable by the landowner/developer if they’ve had an uplift in land value exceeding $100,000.
- The Treasurer may allow exemptions to the WGT for “excluded rezoning”. See examples below.
- The WGT will mostly affect developers in regional areas who purchase development sites to be rezoned to a more valuable land class, e.g., from farms to residential land.
- The maximum tax payable is 50% of the uplift.
- There are concerns that the WGT will impact housing affordability in regional areas and create a further divide in housing supply between metro and rural Victoria.
- The rising cost of land could result in a $7.7bn hit to the economy, including $170m in lost stamp duty, 20,000 lost sector jobs and impact another 100,000 indirectly linked jobs.
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What is the Windfall gains Tax?
The Windfall Gains Tax (WGT) is a new Victorian tax, that will be payable to the State Revenue Office after there’s been an uplift of more than $100,000 in land value due to rezoning. See below for exemptions*.
Who will the Windfall Gains Tax affect?
The WGT applies to Victorians with land that’s been rezoned resulting in a land value increase of more than $100,000. If the land is held on trust, the trustee will be assessed for the WGT. If the land is owned by multiple parties, the owners will be jointly assessed. Where the land is managed by corporations and/or trusts, all members of the group will be liable for WGT. The legislation for grouping rules is wider than the comparable rules for land tax purposes, especially when applied to groups of trusts.
To put it simply, the WGT targets developers in regional areas who purchase development sites that will be rezoned to a more valuable land class, for example from farms to residential land.
When is the Windfall Gains Tax payable?
The landowner/developer will become liable for WGT at the time of the rezoning event. The Commissioner of State Revenue will issue a ‘notice of assessment’ which states the liability and the due date of payment.
It’s up to the person that’s been sent the ‘notice of assessment’, to notify the Commissioner if there are any errors or omissions within 60 days of the assessment issue date.
*Is anyone exempt from the Windfall Gains Tax?
The Treasurer may allow exemptions to the Windfall Gains Tax, for “excluded rezoning” such as these examples:
- A same-zone rezoning between schedules, e.g. rezoned from a Neighbourhood Residential Zone Schedule 2 to a Neighbourhood Residential Zone Schedule 1.
- Rezoning to the Urban Growth Zone within a Growth Areas Infrastructure Contribution (GAIC) area which typically occurs in city-fringe areas rezoned to allow for Melbourne’s urban growth.
- The first rezoning after 1 July 2023 of land that had been in the GAIC area before then.
- Rezoning between different public land zones, or to a public land zone.
How much Windfall Gains Tax will be payable?
The maximum tax payable is 50% of the uplift. If the rezoning adds $100,000-$500,000 in value to the land, the landowner/developer must pay 62.5% of the uplift above $100,000. If the rezoning adds $500,000 or more, there’s a 50% tax rate on the purchase.
How will the Windfall Gains Tax impact construction?
Despite the Victorian ‘building boom’ being predicted to last for at least another year, industry experts are predicting a slump by mid 2023, meaning the Windfall Gains Tax will hit builders at the worst possible time.
Matthew Kandelaars, Chief Executive of the Urban Development Institute of Australia (Victoria) says that the industry has calculated an estimated $170m in lost stamp duty, 20,000 lost sector jobs and a further 100,000 jobs indirectly linked to the WGT.
What does the Windfall Gains Tax mean for regional Victoria?
There is widespread concern that the WGT will negatively impact housing affordability in regional areas and create a more significant divide between metro and rural Victoria. We’ve already seen a significant shift of population to regional areas in the last 2 years, due to the pandemic and rising costs of property in Melbourne. With the increasing land costs due to WGT many developers will now reconsider development meaning fewer new homes are likely to be built.
When speaking to Nathan Mayby at The Herald Sun, Fiona Nield, Executive Director of the Housing Industry Association (HIA – Victoria), suggests that the Windfall Gains Tax could have a detrimental impact on regional Victoria. She said, “HIA modelling shows that the price of a housing lot in the Geelong growth area is set to increase by as much as $53,000 under the windfall gains tax”.
This significant increase in land costs could result in the loss of thousands of proposed projects, including the building of 300 affordable, social or disabled-access homes. Thus, resulting in a massive $7.7bn hit to the economy.
Also, home prices in some areas would surpass the regional cap on the government’s Homebuyer Fund, reducing homebuyers access to homes below $600,000. Incidentally, the Homebuyer Fund cap for Metropolitan Melbourne and Geelong is $950,000.
How will the Windfall Gains Tax impact Melbourne’s outer suburbs?
The Windfall Gains Tax will also likely lead to raised home and commercial prices in key infill pockets around Melbourne.
For example, in anticipation of the new Metro Tunnel’s Arden Station opening in 2025, the Arden Precinct in North Melbourne was pipped for rezoning to facilitate approximately 15,000 residents and provide 34,000 jobs. While developers have costed several projects at the site, some rezoning is yet to take place. If developers don’t meet the 1st July 2023 deadline, costs for buyers will increase dramatically and housing supply will be severely impacted.
What’s next for the Windfall Gains Tax?
The Windfall Gains Tax now is now awaiting Royal Assent before it can be implemented. As always, the team at Capital Properties will keep you updated on any changes to the WGT roll-out as well as any other relevant changes in the property market.
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