Windfall Gains Tax (WGT) applies to sales of public land in the hands of water corporations and Councils following rezoning. There are only a few relevant exemptions. The applicable rate is 62.5% of the uplift in value over $100,000 up to $500,000, and 50% of the uplift if over $500,000. Most public land earmarked for sale including Council and water corporation sites will be liable for WGT. The tax is levied on the uplift in value from the Capital Improved Value before rezoning (CIV1) to the CIV after rezoning (CIV2). Most public land is exempt from rating so there will be no published CIV1. In these cases it will be up to the Valuer-General to assign a valuation before sale. So the challenge is to maximise CIV1, ie the pre-rezoning valuation. Drawing a parallel with private land sales, an example is rural land adjacent to established residential areas. Most land in growth areas adjacent to established residential areas will have a value reflecting the anticipated rezoning or future development expectation. So the uplift subject to WGT is not from a raw rural value, but based on valuation experience, most likely something reflecting half or more of the expected uplift after rezoning. This reflects prevailing market conditions, the expectations of vendors and competition between developers to secure land for future development. Many vendors of near-urban rural land are successfully challenging CIV1 values as too low on this basis. Turning then to public land, most Council and water corporation land is held in the Public Use Zone. Some may be in the Public Park and Recreation Zone. In both these zones, the Council or water corporation would be the public land manager. It is open to the Council or water corporation to apply for a permit for the subdivision and/or development of the land, or take other steps to improve the value of the land prior to sale eg through a draft Design and Development or Development Plan Overlay or some similar indicative approval. So rather than selling what might be described as ‘raw PUZ land’ the authority is selling land which already has development approval and development expectation built in. This will be reflected in CIV1. We have acted for a number of Councils in putting in place planning approvals, or an endorsed development brief as the basis of sale. This allows CIV1 to be maximised, increasing the net proceeds for the Council or water corporation and reducing the amount of WGT payable. This approach has other benefits. It improves certainty for the buyer, by making the ultimate yield more predictable. The buyer can always choose to pursue some other development scheme, but having a planning framework endorsed by Council and entering into a conditional contract assists in maximising the return independent of any WGT issues. Public land is too important a resource and the revenue able to be captured is too great to simply sell land under the current public zoning without capturing the uplift. This approach also assists in meeting Victorian Land Monitor land disposal guidelines which suggest that public land should be rezoned before sale. The use of a conditional contract allows the value uplift to be maximised for the public body, whether followed by rezoning in the hands of the authority or subject to a conditional contract where the rezoning is achieved jointly by the purchaser and the authority. Our team has achieved significant uplift in values using this approach. We can undertake a due diligence and assist with developing the strategy for any proposed public sector sales and advise on an appropriate development approval framework having regarding to the development context for any site. Further information Please contact our Building Regulatory Team should you require any further advice: Daniel Silfo, Elizabeth Flanagan, Ian Pridgeon, Marcus Heath and Matt Taylor. If you’d like to stay up to date with any of Russell Kennedy's mailing lists, please sign up here.