Initially announced in Victoria's 2020-21 State Budget, and introduced to the Legislative Assembly (lower house) on 12 October, the bill passed in the Legislative Council (upper house) on Thursday with an absolute majority.

The Windfall Gains Tax (WGT) applies when the taxable value uplift in land owned resulting from a rezoning exceeds $100,000.

It would apply from 1 July 2023, and landowners would need to pay the tax bill either at time of sale or 30 years after rezoning - whichever happens first.

They would also need to pay interest on the deferred tax bill every year from rezoning.

The bill is targeted primarily at property developers, with residential land less than two hectares exempt.

Value Uplift Windfall Tax Payable
Less than $100,000 $0
$100,000-$200,000 62.5% in uplift exceeding $100,000
$500,000< 50% on the total uplift

The Housing Industry Association (HIA) was particularly vocal in its opposition to the new tax.

"In pursuing such an outcome, the Government appears determined to put home ownership out of reach for even more Victorians, by placing further upward pressure on the cost of land for new housing which continues to be in short supply," HIA executive director Fiona Nield said.

"For private land owners, the tax will be a major disincentive for them to sell or develop their land for housing, and if they do then the costs will be passed directly to developers and homebuyers.

"The timing of this new tax couldn’t be worse. It will come as homes built using the recent Federal Government’s HomeBuilder grant will have been completed, with the risk that new home builds will most likely be in decline threatening jobs in the years ahead."

The latest package also includes a premium stamp duty rate on properties over $2 million, and there are also concerns about 'double taxation' with the WGT and capital gains tax, or CGT.

"Further thought will need to be given to the interaction between any other taxes such as capital gains tax, which is a federal tax, and WGT and the impact, if any, that WGT may have on any CGT that may be payable on any disposal of the relevant land," Clayton Utz lawyers said.

Fear mongering

In July, SGS Economics & Planning senior associate, Gerard Lind, called the opposition to the taxes "fear mongering".

"A windfall gains tax is simply taxing the unearned land value generated by a rezoning. As far as taxes go, this is about as fair as they come," Mr Lind said.

"Giving property rights away for free when it’s time to rezone ... is akin to letting mining companies dig up minerals without paying any royalties.

"From this perspective, making landowners pay for only half of the property rights is a bargain."

The Australian Capital Territory has had a WGT of up to 75% since 1971, while NSW is considering a 'development contribution regime'. 

Emily Sims, research manager at tax reform research institute Propser, said WGT is one of the fairest taxes.

"Removing half the honeypot will affect some of the wealthiest players in the industry – those that simply buy land 'in the path of development' and wait," Ms Sims said.

"They wait for earnest developers to come knocking at their door wanting land at an affordable price. This kind of activity doesn’t add any value to the development process and it should be discouraged."

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