Legal Insights

The impact of Windfall Gains Tax on regional property

By Mark Kemp, Adam Jaques

• 17 December 2021 • 3 min read
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It would not be an overstatement to assert that the Windfall Gains Tax (WGT) is the most significant event for the property industry since the introduction of the GST and Growth Areas Infrastructure Contribution (GAIC). It is therefore not surprising that the WGT has been subject to a myriad of technical analysis and has dominated legal, accounting and property industry newsletters since its announcement as part of the 2021 Victorian State Budget.

However, the practical effects of WGT and in particular the ramifications for the development and ownership of regional property have been largely overlooked. This is unfortunate because the unique features of regional property, coupled with the deficiencies of the legislation, distort the effects of WGT on the regions and will result in regional developments being impacted on a much greater scale than those in urban areas.

In particular:

  • the extent of zoning changes and accordingly the amount of value uplift in the regions will be much more comprehensive than those in urban areas. Developments in urban areas usually take place on land that is already serviced and developed to some extent with the result that zoning changes are minimal or not required at all. Accordingly, the impact on most urban developments will be less. However, a rezoning from vacant farm land to permit a regional development is a much more significant change and consequently a much greater value uplift and WGT payment will arise
  • regional developments are generally greater in scale and complexity, comprising, for example, broad acre master planned communities with significantly greater numbers of lots than urban townhouse/ apartment developments. As a result, they have significantly longer lead times which means that regional developers will have to carry WGT costs for a much longer period than their urban counterparts
  • land that is subject to GAIC is exempted from the operation of WGT. This results in a bizarre situation that more valuable and developable land in the Urban Growth Corridor will be taxed at a lower rate per hectare than less valuable WGT land
  • revenue generated from WGT is not earmarked for infrastructure in the areas that it is collected but will be paid into consolidated revenue. This makes it extremely unlikely that WGT revenue will be used for anything other than repayment of government debt thus depriving the regions of any benefit from the proceeds. This will bite particularly hard in high-growth regional areas like Geelong and Ballarat, which are already struggling to fund the desperately needed infrastructure to support that growth
  • as revenue will not be reinvested in the regions, there will be no scope for any decrease in Development Contribution Plan and Infrastructure Contribution Plan payments, further increasing the burden on regional developers.

It is difficult to reconcile these issues with the stated objective of the WGT, being:

‘A tax on windfall gains associated with a rezoning is an efficient and targeted way of capturing a fair share of these value uplifts for the community contributing to infrastructure and services’.

This is particularly the case because the:

  • funds raised are going to consolidated revenue and are not guaranteed to be spent in the regions in which they are raised
  • WGT applies the same rules to land with fundamentally different features resulting in distorted outcomes and increased WGT for regional property and results in a lower cost for the rezoning and development of more valuable GAIC land.

The Maddocks Tax & Revenue and Development Teams will be focusing on the practical effect of the WGT and assisting our clients to manage those effects.

Look out for our further articles in the coming months and please reach out to one of our partners if we can assist.

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