Victoria’s windfall gains tax (WGT), also known as the vacant residential land tax, will be introduced as of July 2023. The tax has been implemented by Victoria state government, and is aimed at encouraging property development by imposing a tax on vacant residential land that has significantly increased in value.
According to statistics released by the Victorian government, the windfall gains tax is expected to raise approximately $250 million in revenue over the next four years. This revenue is said to be used to fund infrastructure projects and support affordable housing initiatives in Victoria.
However, the windfall gains tax has also been met with understandable criticism from property developers who have argued that the tax unfairly penalises those who have made legitimate investments in properties that have increased in value due to changes in government policy or zoning decisions. Others have argued that the tax could discourage development in certain areas of Victoria, further fuelling the housing crisis and continuing to drive up rental prices.
Property investor Hayden West feels the government is not considering the bigger picture, and this is just a money grab by the state government. Mr West said:
“If you own something on the fringe waiting for it to be developable land there’s a good chance that your feasibility won’t even stack up now and it could have already been a 10 year play”
Given the housing crisis Australia is already experiencing, the idea of making it more unattractive or in some case now unviable for developers to supply new housing stock seems to strike to property experts as a terrible move forward for everyone.
Below describes 3 scenarios of how much tax a land holder would be forced to pay under the new windfall gains tax:
With these changes in mind, it might pay to better understand who would be expect from these large tax bills.
Excluding primary production lad, if the land if less than 2 hectares and has a livably dwelling that is the only piece of property that particular individual owns.
And properties that are owned by registered charities provided they use the land for at least 15 years for their charitable endeavours.
If you are a victorian land owner that falls into the firing line of the changes and doesn’t meet these exemptions, when would you need to pay the tax? A reasonable person might assume it would be if the land is sold to a developer, not in this case, this Victorian tax will be one of the first to tax “unrealised gains”
Payment of WGT will become due from the date that the landowner receives a notice of liability. This will most likely be very shortly after the re-zoning is published in the Victorian Government Gazette in accordance with the re-zoning process set out in the Planning and Environment Act 1987 (Vic) (“P&E Act”). The landowner will then have up to 60 days to either pay the WGT or request a deferral of payment.
Mr West went conclude by saying:
“How far do we let taxes go before it’s simply removing enough reward for people’s effort and risk taken, if they don’t see the reward they won’t progress forwards.”