Victorian Windfall Gains Tax: Private Lending Legal Risks Victoria Lenders Cannot Ignore

The Windfall Gains Tax (WGT) came into effect on 1 July 2023. Since then, it has created a new category of private lending legal risks Victoria lenders must address before advancing funds against land with development potential. The tax applies when government rezoning decisions increase land value by more than $100,000. A statutory charge automatically attaches to the land to secure any unpaid WGT liability. That charge can sit above your registered mortgage in the priority queue.

For private lenders and family offices funding property acquisitions or development projects, this represents a material threat to security. The tax liability can reach 50% of the uplift value on rezoning gains exceeding $500,000. On a parcel where rezoning adds $2 million in value, the WGT liability could exceed $900,000. If that liability remains unpaid and crystallises as a statutory charge, your first-ranking mortgage suddenly shares priority with the State Revenue Office.

How the Windfall Gains Tax Creates Statutory Charges

The WGT operates differently from most property taxes. It does not simply create a debt owed by the landowner. It creates a charge over the land itself. The Windfall Gains Tax Act 2021 (Vic) provides that unpaid WGT typically becomes a charge on the land. This charge has priority over other encumbrances except those specifically preserved by the Act.

The liability trigger is the rezoning event. When the Victorian Planning Authority or a local council amends a planning scheme to permit higher-value uses, the WGT assessment follows. The landowner receives a notice of assessment and must pay within 30 days unless they elect to defer. Deferral is available until a subsequent dutiable transaction, partition, or 30 years, whichever occurs first.

Deferral sounds convenient for borrowers. It is dangerous for lenders. A deferred WGT liability continues to accrue interest. The statutory charge remains attached to the land. If your borrower sells the property or you enforce your security, the WGT liability crystallises and must be paid from settlement proceeds. The State Revenue Office will not release the charge until payment occurs.

Private Lending Legal Risks Victoria: Where Your Security Sits in the Queue

The priority rules under the WGT Act create significant risks for secured creditors. Current guidance indicates that WGT creates a first charge on the land that ranks ahead of any existing mortgage or charge. There appears to be no clear exception preserving the priority of mortgages registered before the rezoning event, meaning the statutory charge takes priority regardless of when your security was registered.

Consequently, your first-ranking mortgage effectively becomes second-ranking behind the WGT charge. On enforcement, the State Revenue Office gets paid before you do.

The commercial asset lending legal framework Victoria operates under has not caught up with these changes. Standard mortgage documentation drafted before July 2023 rarely addresses WGT exposure. Many template loan agreements still in circulation treat statutory charges as a general default event without specific WGT provisions. This gap exposes lenders to losses that proper documentation could prevent.

Research from Melbourne Law School on financial product risks confirms that emerging statutory obligations often create gaps in standard documentation that only surface when enforcement becomes necessary.

Due Diligence: Identifying WGT Exposure Before Settlement

Effective due diligence for WGT exposure requires more than reviewing the current planning zone. You need to identify:

• Current planning scheme provisions: What uses does the existing zone permit? What is the land currently valued at under those permitted uses?
• Exhibited amendments: Has the council or Planning Authority exhibited any proposed amendments that could affect the land? Amendment tracking is available through the Department of Transport and Planning website.
• Strategic planning documents: Is the land identified for potential rezoning in a Plan Melbourne implementation plan, a precinct structure plan, or a local council strategic framework?
• Previous rezoning events: Has the land already been rezoned since 1 July 2023? If so, has the WGT been assessed? Has it been paid or deferred?
• State Revenue Office searches: Request a WGT certificate from the SRO confirming any assessed or deferred WGT liability attached to the land.

The SRO certificate is the most direct source of information. It will disclose any assessed WGT, whether payment has been made, and whether deferral has been elected. If deferral applies, the certificate will show the deferred amount plus accrued interest.

For land without a current WGT assessment, the due diligence question shifts to probability. What is the likelihood of rezoning during your loan term? If you are funding a borrower who intends to seek rezoning as part of their development strategy, WGT liability is not a risk. It is a certainty.

Protective Clauses: How to Protect Private Lenders Australia Documentation

Standard mortgage covenants need specific WGT provisions. Generic “comply with all laws” clauses do not give you the control you need. Consider including:

WGT disclosure warranty: The borrower warrants that they have disclosed all known or anticipated rezoning events, all exhibited planning amendments affecting the land, and any WGT assessment notices received. A breach of this warranty should trigger immediate default.

No deferral without consent: Prohibit the borrower from electing WGT deferral without your prior written consent. If deferral occurs, you want control over whether the liability sits accruing interest against your security or gets paid from loan proceeds at the outset.

WGT reserve or retention: For loans against land with identified rezoning potential, retain a portion of loan proceeds in a controlled account to cover estimated WGT liability. Calculate the retention based on the expected uplift value and applicable tax rate.

Mandatory discharge on sale: Require that any sale of the land include payment of all WGT liabilities from settlement proceeds as a condition of your mortgage discharge. Do not release your mortgage until the SRO confirms the WGT charge has been removed.

Understanding unregistered security risks compounds the WGT problem. If your security position is already vulnerable due to registration issues, a WGT statutory charge creates additional priority complications.

Enforcement Scenarios: What Happens When WGT Meets Mortgagee Sale

You provided $3 million in finance secured against land valued at $4.5 million following a recent rezoning. Your LVR of 67% appeared conservative. However, the borrower had elected to defer the $1.5 million WGT liability. That deferred WGT, plus accrued interest, ranks ahead of your mortgage. Your true security position is not $4.5 million minus $3 million. It is $4.5 million minus $1.6 million (WGT plus interest) minus $3 million. If the borrower defaults and the land sells at valuation, you recover in full. If the market softens 15% and the land sells for $3.8 million, the WGT takes $1.6 million and you receive $2.2 million against your $3 million debt.

If your loan documentation had prohibited deferral without consent, you could have required the borrower to pay the WGT from their own funds at assessment. If your documentation had included a WGT retention, you would have held funds to cover the liability. If your due diligence had identified the rezoning probability, you could have structured the loan with a lower LVR to accommodate the expected WGT exposure.

Strategic Considerations for Development Finance

Development finance presents particular WGT challenges. Many development projects depend on rezoning to achieve feasibility. The borrower needs the rezoning to unlock value. The WGT liability is an expected cost of that value creation.

For these transactions, treat WGT as a project cost in your feasibility analysis. Add the estimated WGT to your calculation of total project costs. Assess whether the project remains viable after WGT. Structure your loan to ensure WGT payment occurs from project proceeds before your principal repayment.

ASIC’s 2026 outlook identifies poor private credit practices and private credit fund misconduct, including real estate lending, as continuing focus areas. Lenders who fail to account for statutory charges like WGT in their risk assessment may face regulatory scrutiny if losses result.

The commercial asset lending legal framework Victoria requires also demands attention to your borrower’s capacity to manage WGT obligations. A borrower who cannot fund the WGT from sources other than your loan proceeds is a borrower whose project economics may be marginal.

Documentation Review: What to Check in Existing Loan Books

If you have existing loans secured against Victorian land, review your documentation for WGT gaps. Check whether your mortgage covenants address:

• Disclosure of planning scheme amendments
• Restrictions on WGT deferral elections
• Events of default triggered by WGT assessments
• Provisions for WGT payment on enforcement

For loans where the security land has development potential, consider whether supplementary documentation is warranted. A deed of variation adding WGT-specific covenants may be appropriate. Alternatively, require the borrower to provide updated WGT certificates periodically as a condition of the loan continuing.

The principle applies equally to building project protections. Statutory charges of various kinds can affect construction finance security, and WGT is simply the newest addition to that category.

Working With Your Legal Advisers

Standard conveyancing solicitors may not have deep familiarity with WGT implications for secured lending. The Act is relatively new. Its interaction with mortgage priority rules involves technical analysis that sits outside routine property transactions.

When instructing lawyers on private lending transactions involving Victorian land, specifically raise WGT as a due diligence item. Request confirmation that searches have been conducted and that documentation addresses the identified risks. If your lawyers cannot demonstrate familiarity with WGT priority rules, consider whether they have the expertise your transaction requires.

The difference between a solicitor who documents what you ask for and a legal adviser who identifies risks you have not considered can be measured in avoided losses. WGT exposure is exactly the type of risk that proactive legal counsel should raise before you advance funds, not after enforcement reveals a priority problem.