Victorian Duty Alert: Proposed Changes To Land Transfer Duty (Duty Payable On Assumed Tax Liabilities)

The Victorian State Revenue Office (SRO) has recently released Draft Ruling DA-070 (Draft Ruling) which proposes to alter the way that consideration is calculated for the purposes of land transfer duty under the Duties Act 2000 (Act). It provides guidance on the circumstances where land tax, windfall gains tax, and congestion levy liabilities will be treated by the Vic SRO as forming part of consideration for the transaction. This change in practice will apply to contracts for sale entered into from 1 February 2026, but is subject to consultation and the final ruling may be amended before that date.

The Draft Ruling marks a significant shift in the long-standing practice not to treat settlement adjustments on the account of taxes as part of the consideration for the transaction.

The proposed changes must be taken into account now, for any option or contract being negotiated where contracts will be exchanged on or after 1 February 2026. As outlined below, additional duty will be payable on account of land tax, windfall gains tax and congestion levy adjustments.

Overview of Land Transfer Duty

The duty chargeable under Chapter 2 of the Act for a transfer of dutiable property is calculated at general rates up to 6.5% on the greater of the consideration for the transaction and the unencumbered value of the dutiable property transferred.

Although consideration is not defined in the Act, it is well established that in a duties context the concept of consideration is broader than consideration in a contractual sense. In Archibald Howie Pty Ltd v Commissioner of Stamp Duties (NSW) (1948) 77 CLR 143,Dixon J said:

"In the context I think that the word "consideration" should receive the wider meaning or operation that belongs to it in conveyancing rather than the more precise meaning of the law of simple contracts ... the consideration [for a transaction for duties purposes] is rather the money or value passing which move the conveyance or transfer" (emphasis added).

In the Draft Ruling, the SRO focuses on cases which have applied this concept to conclude that whether or not assumed tax liabilities are consideration turns on "whether, at the time of transfer, the vendor would transfer the land only in return for the payment in issue. If so, the payment moves the transfer and is consideration". On this basis, the SRO concludes that in the usual case a vendor would not transfer the land without an adjustments process with the effect that the additional payments are consideration for duties purposes.

What types of Assumed Tax Liability Amounts will now be characterised as consideration?

Land Tax

Where the sale price of land is at or above the threshold amount prescribed in the Sale of Land Act 1962 (SLA), currently $10.4 million (below this threshold amount adjustments for land tax cannot be made), any payment made by the purchaser to the vendor in addition to the sale price for the purposes of assuming a portion of land tax constitutes consideration for the transfer.

Windfall Gains Tax (WGT)

Under the SLA, a contract of sale is invalid to the extent that it purports to require a purchaser to make a payment for a WGT liability that exists when the contract is made. However, in the event such a liability arises after the exchange of contract but before settlement, any contribution made by the purchaser for that WGT liability constitutes consideration.

Congestion Levy

Similarly, if a purchaser is required to assume a liability for the vendor's congestion levy payable under the Congestion Levy Act 2005, that amount forms part of consideration.

Rates

In contrast to the above taxes, the Vic SRO considers that a reimbursement for rates reflects the vendor's pre-payment of rates for the post-settlement period of ownership for which the purchaser would otherwise have been liable. On this basis, the Vic SRO does not consider such payments to be consideration for duties purposes.

However, if a payment to the vendor is for rates referrable to an earlier rating period (that is, a rating period prior to settlement), that payment will constitute consideration for the transfer of the land.

Complications arising from this ruling

This ruling introduces significant latitude into what the Commissioner deems to be consideration for the purposes of calculating land transfer duty.

Under this proposed regime, additional compliance burdens will also arise given the practicalities of paying the correct amount of land transfer duty which is required ahead of settlement. For example:

• a vendor arranges to sell a parcel of land to a purchaser, on the condition that the purchaser pays the portion of land tax attributable for the period between settlement and the end of the year;
• the transaction is lodged with the State Revenue Office ahead of settlement, whereupon an assessment is made of the duty payable based upon the total consideration, as calculated using the settlement date stated on the contract for sale;
• however, if the actual date of settlement is later than the anticipated date, the amount of the tax liability assumed by the purchaser would be reduced. This would then correspondingly decrease the consideration for the transaction and entitle the purchaser to claim a refund which would require a reassessment application.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.