From 1 July 2023, a windfall gains tax (WGT) applies to land that is subject to a government rezoning resulting in a taxable value uplift to the land of more than $100,000.
There are a number of exemptions and exclusions from the windfall gains tax, including:
- Residential land exemption
- Land entitled to a transitional exemption from windfall gains tax
- Land rezoned to or from the Urban Growth Zone within the Growth Areas Infrastructure Contribution (GAIC) area
- Charitable and university land
- Land rezoned to a Public Land Zone
- Land rezoned to correct an obvious or technical error in the Victoria Planning Provisions or a planning scheme
- Land rezoned to a Rural Zone (other than the Rural Living Zone)
1. Residential land exemption
For each planning scheme amendment that rezones land, up to two hectares of ‘residential land’ owned by the same owner or group will be exempt from the windfall gains tax.
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
- primary production land (generally commercial farmland) which 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
- 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.
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 with a residence.
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
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.
More about the residential land exemption
2. Land entitled to a transitional exemption from windfall gains tax
Arrangements entitled to a transitional exemption are:
- some rezonings which were underway before the announcement date of 15 May 2021
- rezonings of land where a contract of sale or option arrangement was entered into before 15 May 2021.
More about transitional exemptions
3. Land rezoned to or from the Urban Growth Zone within the Growth Areas Infrastructure Contribution (GAIC) area
Rezonings to and from the Urban Growth Zone (UGZ) within the Growth Areas Infrastructure Contribution (GAIC) area are excluded from windfall gains tax, as these properties are already subject to GAIC.
4. Charitable and university land
A waiver is also available for land owned by a charity if the land is used and occupied by a charity exclusively for charitable purposes for 15 years after the rezoning.
Land that is owned by a charity and is used and occupied by a charity exclusively for charitable purposes will be eligible for a waiver of the windfall gains tax, subject to the land continuing to be used and occupied exclusively for charitable purposes for 15 years continuously after the rezoning.
The waiver uses a definition for charitable land which is similar to the test in the charity exemption for land tax. The definition of a charity will be based on the common law definition of a charity.
An exemption from windfall gains tax is also available for land owned by a university that is rezoned by a WGT event. The University must satisfy the Commissioner of State Revenue that any revenue (includes sales proceeds, rent, licence fees) from the land will be used for the universities charitable objectives.
More about charitable and university land
5. Land rezoned to Public Land Zones
The rezoning of land to 'public land zones' is excluded from the windfall gains tax.
6. Land rezoned to correct an obvious or technical error in the Victoria Planning Provisions or a planning scheme
The rezoning of land to correct an obvious or technical error in the Victoria Planning Provisions or a planning scheme is excluded from the windfall gains tax.
To come within this exemption the rezoning must be made pursuant to section 20A of the Planning and Environment Act 1987.
7. Land rezoned to a Rural Zone (other than the Rural Living Zone)
On 20 May 2022, the Treasurer of Victoria, Tim Pallas MP, made a declaration of excluded zones under section 3(2) of the Windfall Gains Tax and State Taxation and Other Acts Further Amendment Act 2021 .
According to that declaration, rezonings to the following zones are excluded rezonings:
- GWZ — Green Wedge Zone
- GWAZ — Green Wedge A Zone
- RCZ — Rural Conservation Zone
- FZ — Farming Zone
- RAZ — Rural Activity Zone.
