New vendor tax on future development sites

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By Aaron Gadiel, Partner

The NSW government has introduced legislation to the state parliament to significantly change the way that development levies work.  The changes include a new vendor tax on future development sites.

The proposed legislation is known as the Environmental Planning and Assessment Amendment (Infrastructure Contributions) Bill 2021.  It was introduced into state parliament as part of the budget legislative package on 22 June 2021.  Budget legislation normally progresses rapidly through parliament.

The key features of the proposed legislation can be summarised as follows:

  • The existing system of local council infrastructure contributions is retained, with some modifications (these are commonly known as ‘section 7.11’ or ‘section 7.12’ and were formerly known as ‘section 94’ or ‘section 94A’ contributions).
  • A new ‘land value contribution’ may now also be imposed by local councils. This ‘contribution’ is, in substance, a vendor tax if a potential development site is sold before it is developed.
  • A new ‘regional infrastructure contribution’ will be applied — it seems this will involve a general state government levy on new development across Greater Sydney, Central Coast, Hunter, and Illawarra-Shoalhaven regions. This ‘contribution’ has the characteristics of a tax, rather than a user-charge.
  • The roll-out of affordable housing levies will continue. Local affordable housing levies will still be able to be imposed — even when there is also a regional infrastructure contribution in place.

The review by the NSW Productivity Commissioner

The proposed legislation has come about as a result of last year’s ‘Review of Infrastructure Contributions’ by the NSW Productivity Commissioner.

This review found that the existing system of development levies was ‘complex, inefficient, inconsistent and lacks transparency’.

The review said that ‘infrastructure planning is often disconnected from rezoning decisions, with contributions not known until late in the development process’.

It said that ‘contributions fail to provide market signals favouring development in lower cost areas. It also prevents developers from properly accounting for these costs in their investment decision, increasing risk and reducing project feasibility’.

The review complained that contributions are collecting ‘only a small proportion of the total cost of the infrastructure required’.  The review generally favoured:

  • increasing the revenue raised from development contributions; and
  • increasing the efficiency of service delivery through better decision-making and measures to control costs.

This review proposed the following ‘priority reforms’:

  • removing the ‘disincentive for councils to accept development and growth’ by allowing for the local government rate peg to reflect population growth;
  • requiring contributions plans to be developed prior to rezoning (which would apparently allow ‘charges to be factored into feasibility studies’);
  • introducing a direct land contribution obligation for landowners following rezoning to provide early and adequate funding for public land requirements;
  • reducing the complexity of section 7.11 local contributions plans by using ‘benchmark costs’ and reducing the role of the Independent Pricing and Regulatory Tribunal in oversighting local councils’ contributions plans;
  • permanently deferring payment of local contributions to the occupation certificate stage;
  • allowing local councils to charge more for the ‘section 7.12’ (formerly ‘section 94A’) fixed development consent levies;
  • limiting the use of state and local planning agreements to direct delivery of works and supporting infrastructure for ‘out-of-sequence’ developments;
  • addressing ‘insufficient’ and ‘ad-hoc’ (state government) special infrastructure contributions through the implementation of ‘modest and simple’ broad-based regional charges;
  • extending state government development levies to recover costs for major transport projects from rezoned properties within station service catchments; and
  • re-distributing the costs of servicing Sydney and Hunter growth areas (from households to development projects) by re-introducing development servicing plans (DSPs) and water levies.

The NSW government issued its formal response to the review earlier this year.  The government generally accepted the recommendations.

The proposed legislation broadly reflects the high-level legislative changes that the Productivity Commissioner said were necessary to achieve the above priority reforms.  However, the ‘reform’ process is at an early stage.  Most of the detail will be in legal documents that will only be prepared after the legislation is passed.

The full package, including the extent of new levies, will not be clear until:

  • the state government finalises a new state environmental planning policy;
  • local councils finalise their new contributions plans; and
  • Sydney Water/Hunter Water finalise their new development servicing plans (DSPs).

The government has given itself discretion as to when the new law starts.  However, the published ‘project roadmap’ implies that the new legislation will formally commence sometime in the first half of 2022.

Land value contribution (the new vendor tax)

Land contributions area

Under the proposed legislation, a local council will have a new power to adopt a contributions plan that identifies ‘land value contributions areas’.

An area will only be able to be included as a ‘land contributions area’ if there is a change to the land’s planning controls that:

  • will enable more intensive development of the land; and
  • as a result, increase the value of the land.

The two-fold nature of this test is important.  There may not be any increase in land value if planning control changes only deliver additional development capacity that is not commercially viable.  If there is no increase in land value, an identification of the land contributions area in a contributions plan might be unlawful.  (It would be prudent to commence any legal proceedings within three months of the contributions plan being made.)

A land value contribution

Once land is included in a ‘land contributions area’ a ‘land value contribution’ will be set for it.

The land value contribution may either:

  • require the dedication of land free-of-cost; or
  • the payment of a monetary contribution,

or both.

The contributions plan will need to:

  • identify land within the broader ‘land value contributions area’ that is required for a public purpose (eg public roads, public open space, public transport, drainage reserves, etc); and
  • specify the maximum amount of the land value contribution, including by reference to a maximum percentage of the value of the land.

That is, the ‘land value contribution’ will be set (at least in part) by reference to a percentage of the land’s value.

Making a land value contribution on sale

On the first subsequent sale of a parcel of land— following its inclusion in a ‘land contributions area’ — the relevant ‘land value contribution’ must be satisfied.  This is, in substance, the reintroduction of a vendor tax (for potential development sites).

The owner of affected land (or a purchaser) will be able to obtain a ‘land value contribution certificate’ from the local council.  The council will calculate the ‘land value contribution’ in accordance with the contributions plan and any regulations imposed by the NSW government.  If the ‘land value contribution’ has already been satisfied, the certificate will say so.

Before any land is actually transferred, the transfer document will have to be endorsed by a person authorised by Revenue NSW.  This endorsement will need to confirm that the relevant ‘land value contribution’ has been satisfied (or that there is no land value contribution).  A transfer document that does not have the endorsement will not be able to be registered.

Development before the first subsequent sale

If (before any sale) the parcel of land is the subject of a development consent, the consent authority may impose a condition requiring the ‘land value contribution’ to be satisfied.

This can only be done if the development is likely to require the provision of (or an increase in the demand for) local public amenities/services.

As with existing local council infrastructure contributions, a ‘land value contribution’ imposed under a development consent condition may be disallowed or amended by the Land and Environment Court in a merit appeal because it is unreasonable in the particular circumstances of the case.  This can be done, even if the ‘land value contribution’ is imposed in accordance with a contributions plan.  However, there is no merit appeal against a particular ‘land value contribution’ if the land is to be sold before a development application is lodged.

Contributions plan may be linked to planning proposals

The proposed legislation raises the possibility that some (or all) planning proposals may need to be accompanied by a draft contributions plan.  The detail on this will not be known until after the legislation is passed and the Planning Minister issues the necessary directions.

A new ‘regional infrastructure contribution’

The existing system of (state government) special infrastructure contributions will be retained and ‘grandfathered’.  That is, there will not be any new ‘special infrastructure contributions’ imposed.

Going forward, the NSW government will be able to introduce ‘regional infrastructure contributions’.  These will be imposed under a state environmental planning policy (SEPP).  Such a SEPP will have to be agreed between the Planning Minister and the Treasurer before it is finalised.  These contributions are additional to any contributions imposed by local councils and government water utilities.

As the name suggests, a regional infrastructure contribution will be a contribution to ‘regional infrastructure’.  This may be any of the following:

  • public amenities/services, including infrastructure that enhances public open space or the public domain;
  • affordable housing;
  • transport infrastructure;
  • regional or state roads; and
  • measures to conserve or enhance the natural environment.

The regional infrastructure contribution conditions must be imposed — when required by a SEPP — via a consent condition in any development consent.

Unlike local council ‘section 7.11’ contributions and ‘land value contributions’,

  • there will be no right to pursue a merit appeal in the Land and Environment Court against a consent condition on the grounds of ‘unreasonableness’; and
  • no link is required between the subject development or land and the purpose for which the contributions is collected.

In short a ‘regional infrastructure contribution’ is simply a tax under another name.

Under the existing special infrastructure contribution regime, a local council’s ‘affordable housing’ contribution cannot be imposed when there is a state-level ‘affordable housing’ levy.  This provision will be removed.  This means that it will be possible for both local councils and the NSW government to impose levies on the same development for ‘affordable housing’.

The Productivity Commissioner recommended a uniform contribution scheme across Greater Sydney (subject to ‘no substantial impact on feasibility’) as follows:

  • $12,000 per dwelling for houses (detached, semi-detached, townhouses);
  • $10,000 per dwelling for all other residential accommodation;
  • $10 to $15 per square metre for industrial development;
  • $20 to $30 per square metre for commercial development; and
  • $30 to $40 per square metre for mixed uses.

The Productivity Commissioner recommended a uniform contribution scheme across the Central Coast, Hunter and Illawarra-Shoalhaven regions (again subject to ‘no substantial impact on feasibility’) as follows:

  • $10,000 per dwelling for houses (detached, semi-detached, townhouses);
  • $8,000 per dwelling for all other residential accommodation;
  • $10 to $15 per square metre for industrial development;
  • $20 to $30 per square metre for commercial development; and
  • $30 to $40 per square metre for mixed uses.

However, state levies for major state transport infrastructure and biodiversity certification of land would also be part of the ‘regional infrastructure contribution’.  These components of the contribution will be additional to the above amounts and would vary between different areas.

The NSW government’s official response ‘accepted’ this proposal, but said that the above rates will be subject to ‘confirming the charging methodology’.  Based on the published road map, these levy amounts will not be finalised until the first half of 2022.


These new ‘reforms’ are intended to bring about ‘a principles-based approach to contributions that better supports growth and development’. The new reformed system is intended to be ‘more accessible, more consistent and be simple to administer’.


  • It is not yet evident that any meaningful steps have been taken to limit planning authority insistence on planning agreements as part of the rezoning process (with the additional cost, delay, uncertainty and investment disincentives that such insistence creates).
  • The intention to require (some) draft contributions plans to be prepared concurrent with planning proposals may further increase the time it takes to bring about changes in planning controls.
  • The costs of developing land are likely to increase. This may reduce the attractiveness of developing land and may see more land retained at its existing use (contrary to what otherwise might be good land use planning).
  • The new vendor tax on potential development sites will apparently seek to recover around half the costs in current greenfield contributions plans (being the land cost). If the property is sold by existing landowners following rezoning, the tax will be immediately payable, well before development takes place.  This is likely to depress sale prices and reduce the likelihood that some landowners will sell, at least in the short and medium terms.  Some landowners may attempt to game out the system, delay selling their land and count on the vendor tax being abolished.
  • The review concedes that there will be ‘short-term impacts’, but says this can be mitigated. It anticipates long-term benefits.

In short, these new ‘reforms’ are, in the short and medium term, likely to contribute to the uncertainty of the planning system and discourage some development from proceeding.

It is far from clear that there will be any long-term benefits.

For further information, please do not hesitate to contact us.

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