A tax liability can affect how land is sold or transferred.
Prohibition on passing on windfall gains tax
From 1 January 2024, vendors must not pass on a known windfall gains tax (WGT) liability to purchasers under a contract of sale of land or option agreement.
However, vendors may factor the cost of the WGT into the sale price. This allows them to recover the cost indirectly, without breaching the prohibition.
A known liability is one that has been assessed and served before the contract is signed.
Any clause requiring the purchaser to pay all or part of a known WGT liability is void. Including such a clause is also an offence.
These rules apply to:
- contracts of sale of land entered into on or after 1 January 2024
- option agreements entered into on or after 1 January 2024.
They do not apply to:
- contracts signed before 1 January 2024
- options granted before 1 January 2024
- contracts entered into after 1 January 2024 under an option granted before that date.
Example 1
On 10 January 2024, Stoneglen Projects receives a windfall gains tax assessment for land it owns. Stoneglen Projects decides to sell the land. On 18 February 2024, it enters into a contract to sell the land to Nestlewood Company.
As Stoneglen Projects received a windfall gains tax assessment before entering into the contract of sale, it must not include a clause requiring Nestlewood Company to pay any WGT.
If Stoneglen Projects included such a clause, it is not valid and they have committed an offence.
Example 2
On 4 January 2024, Maplewick Developments enters into a contract to buy land from Lotwise Group. Both companies expect the land to be rezoned after the execution of the contract, but before settlement. This will trigger windfall gains tax for Lotwise Group. They agree that Maplewick Developments will pay this tax.
As expected, the land is rezoned after the execution of the contract, and a windfall gains tax assessment is sent to Lotwise Group.
At the time of entering into the contract, Maplewick Developments had not been sent the windfall gains tax assessment, so there was no known tax liability. That means the prohibition on passing on windfall gains tax does not apply.
At settlement, Maplewick Developments pays Lotwise Group’s WGT assessment at settlement.
Including the tax in the sale price
A contract cannot require the purchaser to pay a known WGT liability. But if the tax is not known when the contract is signed, the vendor may factor the expected cost into the sale price.
This amount would count as part of the total price. This affects the amount of duty the purchaser pays.
Example 3
In Example 2, the land is $10 million and the windfall gains tax is later assessed at $125,000.
At settlement, Maplewick Developments pays $10,125,000 to Lotwise Group. Lotwise Group then pays the $125,000 tax assessment.
In this case, Lotwise has factored the expected tax into the sale price. Maplewick Developments pays a higher price, but the contract does not require them to pay the tax directly.
The total sale price is $10,125,000. Duty will be calculated on this amount.
Selling land with an undetermined objection
Land can be sold while an objection to a WGT assessment is still being determined. Whoever owns the land when the rezoning occurs must still pay the tax, even if the amount changes after the objection is resolved.
If the tax is not paid at settlement, the liability stays with the vendor. However, WGT is secured by a charge on the land. This means the outstanding amount is tied to the property.
Purchasers can request their own property clearance certificate to check if any unpaid tax is attached to the land. The certificate protects them from paying more than the amount shown on it. If the purchaser does not get their own certificate, we may recover unpaid tax from them.
