Windfall Gains Tax in Victoria – The Hidden Cost of Rezoning Land

It often starts with good news.

A planning amendment is approved. The zoning changes. The land is suddenly worth more than it was yesterday.

For many property owners, that feels like a win.

But in Victoria, that uplift in value can come with a cost that is not always obvious at the time. That cost is Windfall Gains Tax.

From 1 July 2023, the Windfall Gains Tax regime applies where land is rezoned and the value uplift exceeds $100,000. The intention behind the legislation is straightforward. Where value is created not by the owner, but by a government planning decision, a portion of that uplift is captured.

On paper, it makes sense. In practice, it raises real issues for both sellers and purchasers.

We are now seeing contracts where the existence, or potential existence, of Windfall Gains Tax is not properly understood by either side. That is where the risk starts.

The first issue is timing.

The tax is triggered by a rezoning event. That may occur well before a property is sold, or in some cases, between contract and settlement. If the liability has already arisen, it can attach to the land and follow it into the transaction.

The second issue is disclosure.

Under the Sale of Land Act 1962 (Vic), a vendor must disclose certain matters affecting the land. Where a Windfall Gains Tax assessment has issued, or a rezoning has occurred that may give rise to one, this becomes something that must be considered carefully in the Section 32 Vendor Statement.

If it is not disclosed properly, the purchaser may have rights.

If it is disclosed, the question then becomes who is paying it.

This is where we are seeing inconsistent drafting in contracts. Some contracts attempt to pass the liability entirely to the purchaser. Others remain silent. Some include special conditions that are unclear or incomplete.

Silence is not a solution. It creates arguments later.

The legislation itself, introduced through the Windfall Gains Tax and State Taxation and Other Acts Further Amendment Act 2021 (Vic), provides for a number of exemptions.

These include:

• Residential land used as a principal place of residence (subject to limits)

• Pre-existing contracts or options entered into before 15 May 2021

• Certain rezonings already underway before that date

• Charitable and university land

• Technical or corrective planning amendments

There is also ongoing uncertainty around how some planning changes are treated, particularly where amendments relate to schedules within a zone rather than a change in the underlying zone itself.

That distinction matters.

A change in a schedule may not always be considered a “rezoning” in the way the legislation intends, yet the wording is not always as clear as it should be. This is where planning advice becomes critical.

From a conveyancing perspective, the practical issue is this.

By the time a contract reaches a purchaser, the tax risk has already been created or avoided.

The contract either deals with it properly, or it does not.

We are increasingly advising clients to pause and ask a simple question before proceeding:

Has this land been rezoned, and if so, who is carrying the tax?

If that question cannot be answered clearly in writing, the contract needs to be addressed before signing.

At auction, that opportunity does not exist.

Once the hammer falls, the contract stands as it is. Any Windfall Gains Tax exposure built into that contract becomes part of the deal, whether it was fully understood or not.

As explained by David Dawn, Licensed Conveyancer at Victorian Property Settlements, this is one of those areas where the risk is not visible until it is too late.

“Most buyers are focused on price, finance and inspections. Very few are asking whether a planning decision has already created a tax liability sitting behind the title.”

That is where proper review makes the difference.

If you are buying or selling property in Victoria, particularly land with development potential or recent planning activity, this is not something to leave to chance.

Victorian Property Settlements – Trusted for over 25 years by Victorian buyers and sellers. Visit: www.victorianpropertysettlements.com.au

If you would like us to review a contract before you sign, you can submit it here:
https://www.victorianpropertysettlements.com.au/contract-review-request