What Is ‘Value Capture’ and How Is It Being Used in Victoria?

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(And why it matters to buyers, landowners and developers)

When the Victorian Government talks about value capture, they’re referring to a set of taxes, charges and planning policies that aim to recover some of the unearned increase in land value that results when land is rezoned or public infrastructure is delivered.

It sounds reasonable — until you look at how aggressively it’s now being applied.

Value capture mechanisms are increasingly being layered into almost every part of the property market, from farmland on Melbourne’s fringe to family homes near the new Suburban Rail Loop. In effect, it’s become a backdoor tax regime — one that most buyers, sellers and investors don't see coming until it's too late.

1. The Windfall Gains Tax (WGT) – Direct value capture from rezoning

Introduced from 1 July 2023, the Windfall Gains Tax applies where land is rezoned and the uplift exceeds $100,000. The uplift is calculated as the increase in the capital improved value caused solely by the rezoning.

  • Between $100,000 and $500,000: taxed at 62.5% on the uplift above $100,000

  • Above $500,000: taxed at a flat 50% of the entire uplift

This applies before the property is even sold — the tax can be deferred, but interest accrues. It’s already causing real financial distress in rezoned areas like parts of Frankston, Clyde, and Melton.

Refer to our article: "Frankston Rezoning: Who Pays the Price?" for a local example where WGT is directly impacting landowners caught between speculation and council plans.

2. Land-Based Duty Adjustments – Where Overlays are now counted

In a separate but related move, the State Revenue Office is increasingly using planning overlays and designations — like GRZ (General Residential Zone), Commercial Zones, or inclusion in a Structure Plan — to justify higher dutiable values.

That means even if the contract price is modest, the SRO might reassess the property’s value based on its development potential, and charge duty accordingly.

This applies even where no formal rezoning has occurred. An overlay or planning report alone can trigger a reassessment.

We’ve written more on this in our article: "Why Overlays May Now Increase Your Land Transfer Duty" – and we urge clients to obtain full planning and zoning reports before settlement to assess potential exposure.

3. Developer Contributions and GAIC – Growth corridors hit twice

In growth corridor areas (like Clyde, Mickleham, or Tarneit), developers are already paying the Growth Area Infrastructure Contribution (GAIC) — a per-hectare tax often running into hundreds of thousands per parcel.

But on top of that, councils impose Development Contributions Plans (DCPs) and Infrastructure Contributions Plans (ICPs) via the planning permit process. These charges fund roads, drainage, schools and parks — all essential, but expensive.

What’s changed is that the State is now treating these contributions as part of its broader value capture policy platform, even though the costs are ultimately passed on to purchasers through higher land prices.

4. The Suburban Rail Loop (SRL) – Value capture by stealth

One of the most controversial examples of value capture in Victoria is the Suburban Rail Loop (SRL). The government is already planning to tax future land uplift around SRL stations — including areas like Cheltenham, Glen Waverley and Box Hill — through special levies and development contributions.

The theory is that if landowners benefit from a new station nearby, they should help pay for it. But in practice, the costs are falling on ordinary property owners — and the rules remain murky.

In many cases, simply being within a proposed SRL precinct boundary has increased scrutiny, affected lending, and led to higher planning expectations. Buyers should proceed carefully in SRL zones and seek independent advice.

Why This Matters for You

Whether you’re buying a home, investing in development land, or inheriting a property that’s just been rezoned, these value capture rules can:

  • Trigger sudden, unexpected tax bills

  • Affect contract price, duty and settlement terms

  • Reduce net proceeds from a sale

  • Delay financing or permit approvals

These taxes are not just “developer problems.” Everyday property owners are now caught up in them — especially in areas where rezonings or infrastructure announcements have occurred without proper compensation or planning notice.

Final Word

Value capture may sound fair in theory, but in practice, it has become a blunt instrument, often landing hardest on those who least expect it. If you're buying or selling in a rezoned area, a new overlay zone, or near a planned major project, it’s critical to get the facts.

At Victorian Property Settlements, we help clients navigate these risks before they sign. Our advice is based on practical experience, not just theory — and we know where the traps lie.

Visit: www.victorianpropertysettlements.com.au for more.

Victorian Property Settlements – Trusted for over 25 years by Victorian buyers and sellers.