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2ndDec2021

New Windfall Gains Tax Sparks Concerns

  • Article by: Sally Wood

The Victorian government is set to introduce a Windfall Gains Tax (WGT). This tax will be triggered when property or land increases in value by more than $100,000 due to rezoning. Any rezoned land in Victoria (with some exceptions) may be subject to the tax, with a maximum tax payable of 50 per cent of the increase. The new tax will begin from 1 July 2023, with owners of the land at the time that the rezoning takes effect liable to pay.

Rate of Windfall Gains Tax

The rate of WGT will depend on the taxable value uplift. A tax-free threshold applies for taxable value uplifts under $100,000. Taxable value uplifts between $100,000 and $500,000 will be subject to WGT at a rate of 62.5 percent (for the part of the taxable value uplift that exceeds $100,000). For taxable value uplifts of $500,000 or more, WGT is applied at a flat rate of 50% of the taxable value uplift.

Excluded Rezoning

There are some excluded rezoning types that do not trigger the WGT. These include rezoning to a public land zone, rezoning between public land zones, rezoning to the Urban Growth Zone within the Growth Areas Infrastructure Contribution area, and rezoning between schedules in the same zone (for example, from Neighbourhood Residential Zone Schedule 1 to Neighbourhood Residential Zone Schedule 2).


zoning areas

Housing Industry Reaction to the Tax

The introduction of the new tax has been met with significant criticism from the housing and construction industry. The Housing Industry Association (HIA) has voiced concerns about the impact that the WGT will have on housing affordability, further pushing Victorians out of the housing market.

In a media statement realised on 12 November, HIA expressed their disappointment at the decision to introduce the tax. They comment that median house prices are on the rise across Melbourne and that WGT will only add to the difficulty of securing property in a competitive market.

“The Government appears determined to put homeownership out of reach for even more Victorians, by placing further upward pressure on the cost of land for new housing which continues to be in short supply,” the statement reads.

HIA also stated that the timing of the new tax “couldn’t be worse”, given the recent completion of most home builds that utilised the Federal Government HomeBuilder grant. They say that there is going to be a decline in new home builds in the coming years, resulting in stagnant growth in the sector and threatening jobs.

“The Windfall Gains Tax is only a windfall for the Victorian Government. For everyday Victorians, it’s a slowing of the state’s economy and a tax on Victorian jobs at the worst possible time, as the state rebuilds from the world’s longest COVID pandemic lockdown,” they say.

Concerns for Future Homebuyers

As well as criticism from industry, homebuyers are expected to be faced with rising land costs as a result of the new tax. “For private landowners, the tax will be a major disincentive for them to sell or develop their land for housing, and if they do then the costs will be passed directly to developers and homebuyers,” noted HIA in their November media statement.

“Certainty is key – land owners are used to paying Federal taxes on property sales, but this Windfall Gains Tax will bring unnecessary complexity to Victorian property transactions and slow down housing supply. Developers who purchase land for housing development may simply not be able to proceed with their projects in the years to come.”

 
Published: 02/12/2021
Author: Sally Wood
Company: homeshelf.com.au
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