Legal Insights

Windfall Gains Tax: Impact on regional Victoria

By Michael Taylor-Sands

• 03 October 2022 • 1 min read
  • Share

Michael Taylor-Sands identifies 8 implications of the Windfall Gains Tax regime on regional Victorian land transactions relative to Growth Areas Infrastructure Contribution on the urban growth boundary. 

From 1 July 2023, land situated in regional Victoria will be subject to Windfall Gains Tax (WGT) that is not otherwise payable on land situated inside Melbourne’s UGB and subject to GAIC. The application of contrasting tax regimes to essentially the same type of land raises questions around what impact the WGT will have on regional Victorian land transactions relative to UGB transactions.


  • WGT will apply to rezonings both in and around central Melbourne and in and around Victoria’s regional centres (only GAIC liable UGB land is excluded).
  • All land type usage will be subject to WGT (residential, industrial, retail).
  • For residential sites rezoned apartment, townhouse and greenfield land sites attract the tax.
  • Ownership is not determinative - land owned privately and by local/state/federal government is subject to WGT.
  • 1. Value and price uncertainty

    When it comes to valuing and determining a price that can be feasibly paid for UGB land a developer will have the certainty of a predetermined set rate tax calculated on a per hectare basis. The outcome will be a level of confidence in the land valuation feasibility model that it will rely on to determine the value of land, and therefore the price that can be offered to a landowner to acquire it. A developer in regional Victoria will not have the same certainty. Not only will the timing of the WGT be uncertain (because the timing of the rezoning itself is uncertain), but the amount of the tax will be unknown. By being calculated based on two unknown variables in the form of CIV1 and CIV2, a developer will, at best, only be capable of estimating the WGT. The risk associated with such uncertainty will likely be addressed through value and price discounting. While feasible for a buyer as a method of managing risk, such discounting does not serve a seller’s interest. The inevitable outcome will be an increase in the time, cost and complexity involved in transacting regional Victorian land that does not presently exist for UGB land.

  • 2. Tax payable earlier

    GAIC is generally payable on UGB land on a progressive basis, as and when it is developed. The resulting alignment between revenue and the time for payment of the tax means that UGB developers can effectively fund the payment of the tax using revenue generated from the sale of the land to which the tax relates. Such alignment will only be achieved in respect of unzoned regional Victorian land, or if a developer procures rezoned regional land using a Development Agreement. In all cases WGT will be payable on rezoned regional Victorian land at the time of settlement instead of when the land is actually developed. The cost of procuring and holding regional Victorian rezoned land will therefore materially exceed the cost of procuring and holding comparable UGB land.

  • 3. Staging not assured

    A developer acquiring regional Victorian land will only have access to staging in two instances:

    (a) it acquires land pre-rezone and is the registered owner at the rezone date; or

    (b) it obtains control of rezoned land via a Development Agreement structure.

    In contrast a developer dealing with UGB land (pre or post PSP) will always get access to staging via the successive permitted deferral of GAIC. While in concept WGT therefore provides for the staged payment of the tax, in practice access will be limited to land acquired before rezone by a developer (like a speculator).

  • 4. Duty payable on WGT

    Not only will WGT be payable in many cases earlier than GAIC, but duty will be payable on WGT that is not otherwise payable on GAIC. At 6.5% of the WGT liability (14.5% for foreign buyers not based in Victoria), the imposition of duty on WGT will add a further cost to the acquisition and retention of rezoned regional Victorian land that does not exist for UGB land.

  • 5. Valuation disputes

    Regional Victorian councils are likely to experience an increase in valuation objections given the new WGT regime incentivises landowners and developers to try to elevate CIV1 ahead of a rezone in an effort to reduce the positive difference between the pre-rezone value (CIV1) and post-rezone value (CIV2) that WGT will be assessed on. The Victorian Valuer General will remain the ultimate arbiter of both values, but the time, cost and effort associated with increased valuation disputes will affect regional Victorian councils in a way not currently present for growth corridor councils.

  • 6. Cash payment only

    GAIC can be paid in cash or by a developer undertaking pre-agreed works in kind (WIK) for the state government. The benefit of a developer paying GAIC via a WIK is that it can directly benefit the growth corridor in which its land is situated by undertaking the pre-agreed infrastructure works or land transfers within its own corridor. WGT in regional Victoria will not be payable via a WIK agreement. WGT will only be paid in cash, in many cases far earlier than GAIC will otherwise be payable on UGB equivalent land.

  • 7. No expenditure nexus

    GAIC is paid into GAIC specific funds managed by the state and can only be used to fund UGB infrastructure projects. GAIC paid in Cranbourne may therefore not necessarily be spent on new infrastructure projects in Cranbourne, but at least there is some safeguard that GAIC (levied as an infrastructure tax) will actually be used to fund state infrastructure somewhere within the UGB. In contrast WGT will be paid into state consolidated revenue to be spent on any state budget priority of the day. There are therefore no safeguards to ensure that WGT raised in regional Victoria as an infrastructure tax will actually be used to fund regional Victorian infrastructure projects.

  • 8. Development Agreement usage

    GAIC is payable in the same way on UGB land whether the land is acquired by a developer or procured via a Development Agreement. In both instances the GAIC will be deferred, staged and paid as the land is progressively developed. That will not be the case for rezoned regional Victorian land. WGT will be payable at settlement on the acquisition and transfer of the rezoned land to a developer. It will not be deferable or stageable. However, if the same developer does not acquire the rezoned regional Victorian land and instead merely procures it via a Development Agreement, the WGT will remain deferred and stageable, and duty will not be payable on the WGT liability. Regional Victorian developers will therefore be materially incentivised to utilise off-market Development Agreements to procure regional Victorian land, which incentive does not exist for UGB equivalent land.

The policy logic behind imposing different tax regimes on UGB and regional Victorian land is not immediately obvious. In most cases the land is the same and the process of procuring and delivering it comparable. It is also difficult to reconcile the imposition of another layer of state tax on land in parts of Victoria that the government has itself invested so heavily in to encourage regional development of and urban migration to. A new tax which directly adds to the retail cost of land and development seems to be at odds with other government regional initiatives.

Looking for more information on the Windfall Gains Tax regime?

Contact our Tax & Revenue team.

Recent articles

Online Access