From 1 July 2023, a windfall gains tax (WGT) applies to land that is subject to a government rezoning resulting in a value uplift to the land of more than $100,000.
During the implementation of the tax, transitional arrangements will exempt some rezonings.
Exempt rezonings will include:
- some of those which were underway by the announcement date of May 2021
- some of those which were subject to a pre-existing contract of sale or option arrangement entered into by 15 May 2021.
Exemptions for rezonings already underway at 15 May 2021
Where there is an owner-led rezoning, the owner may be entitled to an exemption from windfall gains tax for a rezoning.
The owner must demonstrate that before 15 May 2021:
- they approached the council or Minister for Planning to request the rezoning, and
- they incurred significant costs in relation to that rezoning, and
- the rezoning request was:
- prepared and registered by a council prior to 15 May 2021, or
- the Minister for Planning has agreed to prepare the rezoning as the responsible planning authority, or
- the Minister has authorised another person to undertake the amendment as the planning authority prior to 15 May 2021.
Meaning of 'registered' by a council
For an owner-led rezoning through a council to have been ‘registered’, the rezoning must have obtained a number (sometimes referred to as a ‘C’ number) within the Amendment Tracking System, which is developed and managed by the Department of Environment, Land, Water and Planning.
Meaning of 'significant costs' in relation to a rezoning
Significant costs are costs that have been paid or incurred prior to 15 May 2021 on progressing the rezoning.
These costs are defined in the legislation to include either:
- ‘relevant costs’ meaning costs payable under regulation 6, 7 or 8 of the Planning and Environment (Fees) Regulations 2016, or
- ‘relevant work’ meaning professional analysis or assessment that, in the Commissioner's opinion, is necessarily performed in preparing for or seeking a rezoning of land.
Examples of ‘relevant work’ include, but are not limited to:
- surveying analysis
- engineering analysis
- traffic analysis
- master planning analysis
- Aboriginal cultural heritage assessment
- architectural analysis
- environmental analysis.
Significant costs do not include works done to the land itself, such as remediation and land clearing.
The owner will need to demonstrate they incurred the above costs (i.e. ‘relevant costs’ or ‘relevant work’) to a value that exceeds the threshold amount.
The threshold amount is the lesser of:
- 1% of the pre-rezoning Capital Improved Value of the relevant land, or
The Capital Improved Value of the land is $1 million.
The owner will need to demonstrate that they spent at least $10,000 in total on ‘relevant costs’ and/or ‘relevant work’ before 15 May 2021 to progress the rezoning.
Exemptions in relation to pre-existing contracts of sale and options
Windfall gains tax is not imposed on land that is rezoned if:
- the land is subject to a contract of sale entered into before 15 May 2021 that has not been completed by the transfer of the land before the rezoning occurred; or
- the land is subject to an option to enter into a contract of sale granted before 15 May 2021 that has not been exercised before the rezoning occurred or has been exercised and the contract of sale to which the option relates has not been completed before the rezoning occurred, but only if the terms of the contract of sale were settled at the time the option was granted.
Transitional arrangements — frequently asked questions
What if a person other than the owner of the land approached the Council or Planning Minister for the rezoning?
Where a person pursues a rezoning with a Council or the Planning Minister on behalf of an owner of the land (i.e. the person is acting with the authority of the owner of the land in pursuing the rezoning amendment), actions of that person in approaching the council and in preparing the land for, or seeking, a rezoning, will be taken to be actions of the owner of the land for the purpose of the transitional exemption.
If, however, the owner of the land is unable to demonstrate that the person was acting with their authority in pursuing the rezoning then the exemption will not apply.
Will a new owner of land be entitled to the exemption where the previous owner met the requirements for the transitional exemption but completed a sale of the land before a rezoning?
The transitional exemption only applies to the owner of the land who requested the rezoning and who incurred the significant costs in preparing the land for, or seeking, the rezoning. It does not apply to any subsequent purchaser of the land.
How will the transitional arrangements for contracts and option arrangements operate?
A rezoning of land which is subject to a contract of sale that was entered into before 15 May 2021 and that has not completed when the rezoning occurs will not be liable for the windfall gains tax.
Similarly, where an option to enter into a contract of sale is granted before 15 May 2021 but that option has not been exercised before the rezoning occurs, or it has been exercised but the contract to which the option relates has not been completed before the rezoning occurs, the rezoning will be exempt from windfall gains tax.
For option arrangements to come within this exemption, the terms of the contract of sale must have been settled at the time the option was granted. Accordingly, options such as a right of first refusal will not suffice.
I have entered into a development agreement with a developer before 15 May 2021. Will a transitional exemption apply when the land is rezoned after 1 July 2023?
There is no exemption for owners of land who have entered into a development agreement before 15 May 2021.
Nevertheless, a transitional exemption may apply if the owner of the land can demonstrate any actions of the developer before 15 May 2021 in requesting the rezoning and in incurring significant costs in preparing the land for, or seeking, the rezoning, were undertaken on behalf of the owner (i.e. the actions were undertaken with the authority of the owner).