Victoria’s new rezoning tax
The Victorian Farmers Federation is opposed to the Victorian Government’s proposed windfall gains tax that was introduced into Parliament on 12 October 2021.
This tax couldn’t come at a worse time for regional Victoria. The VFF is deeply concerned the implications this tax have not been thought through and the government doesn’t even know how much revenue it will actually take away from regional communities.
Regional Victoria is suffering from a housing crisis. Across all industries there are job vacancies, because we don’t have enough houses for working families to live in. This is having a particular impact on farm businesses where we have been feeling the effects of worker shortages since well before the COVID-19 pandemic hit.
The Government’s proposed windfall gains tax will hurt regional Victoria because in the attempt to avoid it, developers will look to invest either in outer metropolitan Melbourne or in other states.
This tax will also directly hurt farm businesses. Anytime farmland is rezoned, a tax liability will be created on the balance sheets of farm businesses, impeding their ability to borrow money to grow or maintain their business. This will happen even if there is no desire to sell the farm.
Farmers who have planned for their retirement, or who have been caught out by urban sprawl and are forced to sell their property will be force to pay the tax. For a farmer looking to relocate their business, that’s particularly unfair and could lead to them having to leave agriculture altogether. The Government has also failed to explain how the tax may affect any Commonwealth capital gains liability.
Ultimately, the proposed tax acts as a disincentive for growth and a disincentive to invest in rural and regional communities. Clearly the Victorian Government has not thought-out the implications on farming communities and businesses.
What is the Windfall Gains Tax?
In its 2021/22 State Budget, the Victorian Government announced its intention to implement a new tax that would apply to all land that is subject to a rezoning decision from 1 July 2022.
Where land is rezoned and the subsequent valuation uplift on property is greater than the $100,000 tax free threshold, the uplift will be taxed at a rate of 62.5%, and at 50% for uplifts greater than $500,000.
Payment of the tax may be deferred until the land is sold, or for a period up to 30 years, with interest at the government bond rate accruing annually.
What has the VFF done?
VFF representatives including President Emma Germano have met with the Treasurer, Assistant Treasurer and Treasury officials on separate occasions to voice our objections to elements of the government’s policy and to suggest improvements. The VFF has also consulted with other stakeholders in the property industry and local government.
VFF lobbied for changes to the proposed tax including a delay in its implementation, exemptions for regional Victoria, exemptions for rezoning within rural zones, and other protections for farm businesses.
In October the Government announced it had revised its policy with the VFF successful in securing a delay in the tax’s implementation and an exemption for land that is rezoned from one rural zone to another.
Frequently Asked Questions
Click on the tabs below for answers to questions we are receiving about the Windfall Gains Tax:
Will the windfall gains tax apply to rezoned farmland, even if the land continues to be used for primary production into the future?
Yes. Any time land is to be rezoned the WGT liability will be incurred (unless an exemption applies), even if the land is not sold or redeveloped. This is a serious concern for farming businesses that wish to continue their operations as a tax liability will sit on the balance sheet of the business for up to 30 years, at which point it must be paid in full.
What exemptions will apply?
Farming in Victoria typically takes place in the Rural Zones (Farming Zone, Rural Conservation Zone, Rural Activity Zone, Green Wedge Zone and Rural Living Zone).
Rural Zones place restrictions on what activities can be undertaken on land, but farming is allowed in all instances. The VFF successfully advocated for the tax to not apply to instances where land is rezoned from one rural zone to another, for example Farming Zone to Rural Conservation Zone. This will help to further protect land for farming purposes. However, rezoning to the Rural Living Zone will still be liable for the tax.
All residential properties will be exempt from paying the tax. Where there is a residence on a farm, the valuation of the land will be reduced proportionately. For example, on a 40ha farm the total value uplift will be reduced by 5% – (2ha / 40ha).
Public Zones and Urban Growth Zones
Rezonings to Public Land Zones and rezonings to and from the Urban Growth Zone within the Growth Areas Infrastructure Contribution area (outer-Metropolitan Melbourne) will be exempt from the tax.
How will land be valued?
Valuations will be conducted by the Valuer-General and will be based on the annual valuation conducted on 1 January each year (the same valuation used for land tax, council rates and the Fire Services Levy). When a rezoning decision is completed, the Valuer-General will revalue the land as if the land had been in its new zone on the same 1 January date.
Will I be able to object to the valuation?
Yes. Landowners will have the right to object to the pre and post-rezoning valuation.
How will the windfall gains tax work with capital gains tax?
Typically, the Australian Taxation Office allows for land taxes, stamp duties and similar duties to be added to the cost base of land, which in turn decreases the amount of capital gains tax paid when the land is sold. It is unclear at this time whether the proposed windfall gains tax will be treated in the same way and we are asking the Victorian Government to have this question further clarified.
Next steps and how you can help
Legislation to create the Windfall Gains Tax has been introduced into the Victorian Parliament and will be debated throughout October and November. The VFF is seeking to gain support amongst the Opposition and cross bench to block the tax, or to at least provide further exemptions and concession for farm businesses. Further updates will be posted to this webpage.
If you think your farmland might be affected by the proposed tax, we are interested in hearing your views. Please get in touch with the VFF Policy Team by sending an email to [email protected]