Windfall Gains Tax

Rezoning effectively means an amendment of a planning scheme that causes land to be in a different zone from the zone that it was in immediately before the amendment. However, it does not include a rezoning between schedules in the same zone.

WGT is based on the value uplift measured at the point of the rezoning event on a capital improved value basis, rather than a site value basis. There are provisions for deductions. However, as they will be included in any corresponding Regulation, they are not yet known.

In addition, especially for those liabilities which will be deferred (see below), the calculation does not take into account any decrease (or increase) in value after the WGT Event arises.

While the WGT Event itself gives rise to a WGT liability, payment may be deferred until the next dutiable transaction or relevant acquisition, or until 30 years elapses (with interest accrued over time), whichever occurs first. Certain dutiable transactions will be excluded from triggering the cessation of deferral arrangements, including a subdivision of land, transfer to another charity, dutiable transactions for no consideration, or an acquisition of an economic entitlement.

A relevant acquisition that arises from a pro rata increase in the interests of all unit holders or shareholders of the landholder, or a relevant acquisition of a further interest, do not trigger payment.

For a WGT liability to “rollover” to a transferee under a no consideration dutiable transaction or a relevant charitable land transaction, the transferee must elect to assume the liability. It would therefore seem that land, share, or units transferred as part of a corporate reconstruction will give rise to a payment liability unless the transfer or acquisition is made for no consideration, which is often not the case with such reconstructions. Also, while a transfer may qualify for an exemption from duty, it may nevertheless trigger payment of WGT.

There are a number of proposed exemptions.  The most relevant for ordinary home owners will allow up to two hectares of residential land (including primary production land with a residence) to be exempt where it is rezoned by the same planning scheme amendment, regardless of whether the dwelling is the landowner’s principal place of residence.  For the purposes of calculating two hectares, all land affected by the rezoning which has the same owner is aggregated.

Other exemptions include:

• rezoning that causes land to be brought within the Growth and Infrastructure Contribution (GAIC) regime;
• the first rezoning after 1 July 2023 of land that was in the GAIC regime;
• rezoning to “Rural Zone”, other than “Rural Living Zone”;
• rezoning that causes land that was not in a public land zone to be in a public land zone, or that causes land that was in a public land zone to be in a different public land zone.

Charities will not pay any WGT liability on their land as long as the land continues to be used for charitable purposes for a 15-year period after the WGT Event.  Should the land cease being charitable land any time during the remainder of the 15-year period, the waiver will no longer apply.

Transition arrangements will be introduced which exempt certain land which has met specific requirements by 15 May 2021 (being the date that the WGT was announced). 

The transitional provisions are confined to contracts and options entered into before 15 May 2021 where the terms and price were settled before 15 May 2021.  In relation to development applications already commenced:

• for a proponent-led rezoning pursued through a local council, the owner of the land will need to establish to the Commissioner’s satisfaction that:
  • the owner requested the amendment before 15 May 2021;
  • the request was created and registered in the Amendment Tracking System by the council before 15 May 2021; and
  • the owner of the land had incurred costs above a threshold amount in relation to relevant work for the rezoning or relevant costs to support consideration of the rezoning.
• for a proponent-led rezoning pursued with the Minister for Planning, the owner of the land will need to establish to the Commissioner’s satisfaction that:
  • the owner requested the Minister to make the amendment before 15 May 2021;
  • the Minister agreed before 15 May 2021 to prepare the amendment; and
  • the owner of the land had incurred costs above a threshold amount in relation to relevant work for the rezoning or relevant costs to support consideration of the rezoning.

The threshold amount is the lesser of 1% of the capital improved value of the land immediately before the WGT Event and $100,000.

Importantly, these transitional provisions do not apply to a passive bystander.  That is, someone whose land has been rezoned through someone else’s application or through a Government or Council decision.  Many landowners will be subject to WGT even though their decision to buy the land was made before WGT was introduced.

Grouping and aggregation provisions are applicable so that the $100,000 threshold applies only once to properties owned by the same owner or group of owners which, from a corporate perspective, seems to be a “more than 50%” test.

In the event of subdivision, WGT is apportioned across all of the saleable child titles.  Accordingly, a liability that the parent title is subject to is not apportioned to a road, reserve or common property.

Unpaid or deferred WGT will constitute a first charge on the relevant land.

If there is a mistake in a WGT Event, and a correcting WGT Event results in a negative value uplift on land, there will be a reassessment of WGT with a corresponding refund. However, the refund entitlement only applies if the owner of the land at the time of the correcting WGT event is the same as the owner of the land at the time of the original WGT event.  That is, if a person sells the land in the period between the two events, no refund is available for anyone in respect of WGT charged on that land.

As the regime is yet to commence, nothing happens straight away.  Even then, the first affected landowners will be those who are subject to a WGT Event on or after 1 July 2023.  That said, the ability to undertake reconstructions or changes to ownership structures are likely to be limited once a WGT Event does occur, as such a restructure or ownership change could trigger early payment before any sale is realised.  As such, it would be a prudent time to check that land is in the most desirable structure or vehicle and that any desirable ownership changes are made before commencement.