The introduction of windfall gains tax under the Windfall Gains Tax and State Taxation and Other Acts Further Amendment Act 2021 (Vic) (Act) has been highly controversial from the outset due to real concerns as to whether the tax truly captures a purported “windfall” by landowners who rezone land in Victoria and its punitive tax rate of 50% of such gains.

In our previous article, we looked at some concessions, exemptions and clarifications provided by the Victorian Government in relation to key windfall gains tax policy parameters.

While the Act and the Explanatory Memorandum clearly specify that “deductions” will offset a “value uplift” brought about by the rezoning of land, to date the Victorian Government has not published regulations outlining these deductions.

It now appears that the Victorian Government has recently advised certain industry bodies that it will not be preparing any regulations – ie there will be no deductions against any gain subject to windfall gains tax.

Importance of taxable value uplift deductions

At the core of the windfall gains tax regime is that tax is payable based on the “taxable value uplift” brought about by the rezoning of land.

Section 10 of the Act specifically defines a taxable value uplift as the value uplift of the land less any deductions prescribed by the regulations.

As seen from the wording of section 10, the calculation of “taxable value uplift” is premised not just on the value uplift, but also the deductions.

Implications

Land development expenses & costs ignored:
The refusal to publish regulations prescribing deductions that can offset the taxable value uplift clearly evinces the Victorian Government’s view that matters relating to land development are solely or largely a “windfall” on developers and landowners.

This ignores the realities of land development (including rezoning) which invariably involve costs and expenses including in relation to the rezoning process. This is particularly striking in light of soaring construction and borrowing costs, labour shortages and other inflationary pressures in Victoria.
Uncertainty whether Act is inconsistent with federal taxes:
It is noted that there always have been questions raised as to the constitutional validity of the tax considering that windfall gains tax effectively taxes the same gain as capital gains tax.

It now seems to appear that the non-publication of deductions may further entrench this view.

Questions

It will remain to be seen in the coming weeks and months if the Victorian Government will officially announce its decision not to publish regulations prescribing the relevant deductions.

In the meantime, if you have any questions about how windfall gains tax may apply in your circumstance, please contact our specialist team at:

Phil Broderick
Principal
M +61 419 512 801 | T +61 3 9611 0163
E: pbroderick@sladen.com.au