From 1 July 2023, a windfall gains tax will apply to land that is subject to a government rezoning resulting in a value uplift to the land of more than $100,000.
Not all land rezoned will be subject to this tax — a range of exemptions apply, including an exemption for ‘residential land’.
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.
‘Residential land’ has a particular meaning and can include a farm with a residence on it.
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
- 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.
Residential land exemption — frequently asked questions
Do I need to live in the property 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.
What if I own more than two hectares of residential land?
If you own more than two hectares of residential land that is rezoned by the same planning scheme amendment, only two hectares will be exempt from the calculation of windfall gains tax.
Residential land in excess of two hectares will still be subject to the tax. Windfall gains tax will be calculated based on an adjusted taxable value uplift of the land, with the proportion two hectares represents to the total residential land excluded from calculation of the taxable value uplift.
Example
You have five hectares of residential land that is rezoned by a planning scheme amendment.
Two hectares, or 40% of the land, will be exempt from the calculation of windfall gains tax.
Therefore:
- 40% of the value uplift is excluded
- your liability for the windfall gains tax will be calculated on 60% of the taxable value uplift of the land.
Can I select which two hectares will be exempt?
No, you will not be able to select which two hectares should be exempted. The value uplift of the whole land will be obtained and then its value apportion by reference to size.
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 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 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 that is capable of lawfully being used as a residence is not residential land, even if it forms part of one farm owned by the same owner as the farmland 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 by Joe separately to the other apartments used for the service apartment business is residential land.
