The New Victorian Windfall Gains Tax: Can you prepare for the unpreparable?

What is the Windfall Gains Tax?

On 12 December 2023, the State Taxation Acts and Other Acts Amendment Act 2023 received royal assent. Whilst this legislation introduces changes to multiple Acts, we explore the Windfall Gains Tax Act 2021 (Vic) (the Act) (formerly the Windfall Gains Tax and State Taxation and Other Amendment Act 2001 (Vic)) and the changes made to the Act.

The purpose of the Act is to ‘impose a Windfall Gains Tax on the increase in the value of land resulting from a rezoning’[1] but, more distinctly, the aim is to capture through taxation the ’immediate and significant increases in land value … that accrues solely to the landowner over and above any regular income or profits earned from the land’ as a result of rezoning.[2] Ultimately, it is a taxation on the unactioned and unrealised profits of increases in land value following rezoning. However, while the legislative purpose of the Act is clear there is considerable uncertainty surrounding its real-world practicality and functional efficacy.

Nevertheless, the Act is presently in effect in Victoria and poses a significant potential impact for landowners who may find themselves hit with a seemingly gratuitous tax bill for government actions affecting their land.

Land is rezoned when an amendment is made to a planning scheme which has the effect of rezoning the land to a different zone from the zone that it was in immediately before the amendment and it is generally (but not always) outside of the control of the landowner.  A re-zoning may have material impacts for the development potential of the land, thereby affecting its value. The triggering of a Windfall Gains Tax event may leave landowners with a tax bill that they were not prepared for and do not the capacity to pay at the time. Therefore, as a landowner it is crucial to be aware of what Windfall Gains Tax is and when it applies.

The Windfall Gains Tax Act in Practice

A ‘windfall gain’ is generally an amount of money that is secured unexpectedly or by chance, the most common examples being lottery winnings, unexpected inheritances and settlement payments or insurance payouts.

The Windfall Gains Tax is similar in that it applies to land in Victoria that becomes rezoned resulting in an uplift in the value of the land of more than $100,000. The taxable value uplift is the difference in the capital improved value of the land before and after the rezoning of the planning scheme takes effect, as determined by the Valuer-General Victoria.

The Windfall Gains Tax applies only to land that has been rezoned and not to changes in schedules within the same zone.[3] If a person or entity holds multiple parcels of land that become subject to rezoning under the same planning scheme, then their Windfall Gains Tax liability is assessed on the aggregated taxable value uplift of all the land that they own that was rezoned. If a group or joint venture owner are burdened with a  Windfall Gains Tax liability, then each member of the group is jointly and severally liable for the payment of the tax.

The liability for  Windfall Gains Tax arises when a  Windfall Gains Tax event occurs and owners of land who are liable for a  Windfall Gains Tax event will be issued with an assessment and a due date for payment. The assessment of any tax liability is provided within section 9 of the Act, and is as follows:[4]

  • A taxable value uplift of not more than $100,000.00 will result in a Windfall Gains Tax liability of $0.00;
  • A taxable value uplift of more than $100,000.00 but less than $500,000.00 will result in a Windfall Gains Tax liability of 62.5% of the part of the taxable value uplift that exceeds $100,000.00; and
  • A taxable value uplift of $500,000.00 will result in a Windfall Gains Tax liability of 50% of the taxable value.

The liable landowner may either choose to pay by the due date or defer some or all their  Windfall Gains Tax liability until the next dutiable transaction occurs or 30 years after the rezoning event, whichever occurs first (although interest shall apply on any deferred payment).[5]

Attributing Windfall Gains Tax Liability

The Act explicitly provides that ’the owner of the land when the  Windfall Gains Tax event occurs is liable to pay Windfall Gains Tax on the land’.[6] Upon the occurrence of a  Windfall Gains Tax event, any unpaid  Windfall Gains Tax (including any interest and penalty amounts under the Taxation Administration Act 1997 (Vic) and any accrued interest on deferral) is to be the first charge on the land for which tax is payable, and has priority over all other encumbrances.[7] In other words, in the event that the landowner intends to sell the land, the charge on the land (as registered on title) will not be removed until such time as the landowner has paid the Windfall Gains Tax liability, which would be required to be paid on settlement.

To ensure that the proprietor of the land fulfills their obligated burden of paying the  Windfall Gains Tax liability, the Victorian Government has also amended the Sale of Land Act 1962 (Vic) to prevent vendors from offloading their  Windfall Gains Tax liability through sale of the land and any provision in a contract for the sale of land for the purchaser to pay the  Windfall Gains Tax liability is of no effect in such circumstances.

Exemptions to the Windfall Gains Tax Liability

Part 5 of the Act provides for the following exemptions to incurring a  Windfall Gains Tax liability because of land being rezoned:

  1. Residential Land: under each planning scheme amendment, up to two (2) hectares of residential land owned by the same person or entity will be exempt from Windfall Gains Tax The land as a whole must be used primarily for residential purposes, unless the land is primary production land with a residence. The exemption does not apply to vacant residential land.
  2. Land Entitled to a Transitional Exemption from Windfall Gains Tax: this includes rezonings that were underway before 15 May 2021, and rezonings where a contract of sale or option arrangement was entered into before 15 May 2021.
  3. Land Rezoned to or from the Urban Growth Zone within Growth Areas Infrastructure Contribution (GAIC): this is because land rezoned as such are already subject to GAIC fees.
  4. Charitable and University Land: land that is used and occupied by a charity exclusively for charitable purposes for fifteen (15) years after the rezoning, and land owned by a university for the university’s charitable objectives are exempt from Windfall Gains Tax
  5. Land Rezoned to Public Land Zones.
  6. Land Rezoned to Correct an Obvious Error or Technical Error in the Victoria Planning Provisions or a Planning Scheme: any uplift in value because of this is ignored in assessing Windfall Gains Tax liability while the remaining part of the land is still assessed.
  7. Land Rezoned to a Rural Zone.

Changes to the Windfall Gains Tax Act

Broadly, the Act was recently amended to expand the exemptions for rezoning errors, clarify the meaning of ‘excluded rezoning’ as it applies to land in GAIC  (Growth Areas Infrastructure Contribution) affected areas and clarify the waiver for charitable land, each of which are detailed above.

Efficacy, Effectiveness and Equitability of the Windfall Gains Tax Act 2021 (Vic)

In practice, the implementation of the Act means that parties contracting to sell and purchase property will need to consider whether the transacted land has been or may become subject to  Windfall Gains Tax, and carefully draft special conditions within the contract of sale to account for this and give effect to the parties’ objectives.  Windfall Gains Tax is likely to increase the costs and complexity of acquiring land in Victoria as transacting parties attempt to price the potential  Windfall Gains Tax liability into their contracts.

For developers, the  Windfall Gains Tax is likely to have a significant influence on sale price and so must be factored into their feasibility during the project planning stage. The tax is likely to also impact the timing of transactions as rezoning may occur at any time and the right of a landowner to defer liability can only be exercised once.

Further issues may arise in that landowners that become liable for Windfall Gains Tax but do not wish to sell their property and defer their payment of tax resultingly become susceptible to market volatility over their land. As the  Windfall Gains Tax is assessed at the time of rezoning, considering the value of the land before and after rezoning, if the landowner does not realise the value uplift of the land by selling it at the time of assessment, then if at a later stage the value of the land decreases the landowner will be at an overall loss for their  Windfall Gains Tax paid.

Conversely, the  Windfall Gains Tax may increase speculation as landowners choose to defer their  Windfall Gains Tax liability for 30 years and decline any offers for purchase until such a time as the value of the land has increased beyond the  Windfall Gains Tax assessment amount and choose to sell the property then and pay the liability at that time.

Ultimately, the impact that this tax has on Victorian markets and people is far-reaching, and the full extent of it may not be seen for a long time. With the tax being so complicated to plan and account for, landownership is becoming more precarious with some commentators concerned even about the impact that this tax will have on other areas such as inheritance.

So what does the Windfall Gains Tax mean for me?

The Act is a rather novel and surprising piece of legislation, but one that will surely have significant consequences on market trends and people in Victoria. It is important to discuss these issues with a solicitor if you are considering selling or purchasing land that may become subject to rezoning in the near future.

If you have any queries about Windfall Gains Tax or would like to find out how our property lawyers can assist you, please contact us today on +61 3 9822 8588 or email our team HERE.

  • 1 Windfall Gains Tax Act 2021 (Vic), s1.
  • 2 Parliament of Victoria, Parliamentary Debates (Hansard), Legislative Assembly, 13 October 2021, 3906 (The Hon. Tim Pallas).
  • 6 Ibid.
  • 8 Ibid, s9.
  • 9 State Revenue Office Victoria, Windfall Gains Tax, 29 December 2023, found at:
  • 17 Windfall Gains Tax Act 2021 (Vic), s8.
  • 18 Ibid, s42.


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