While the practical outcome remains largely unchanged, the ruling provides greater clarity on how the Duties Act applies to these transactions and modernises the SRO’s analysis.

What has changed?

Under the former DA‑020 ruling, the SRO focused on whether a transfer of land arising from the incorporation or amalgamation of an association was exempt from duty under section 53A of the now repealed Associations Incorporation Act 1981 (Vic).

The new ruling adopts a different analytical approach. It confirms that:

• property vested in an incorporated association under sections 9 or 21 of the AIR Act constitutes a statutory vesting of land
• statutory vesting is a dutiable transaction under sections 7, 7A, and 8 of the Duties Act 2000 (Vic)
• an exemption is then available under section 218 of the AIR Act where the vesting occurs to give effect to the incorporation or amalgamation.

This clarification aligns the ruling with the modern Duties Act framework for statutory vestings and successor entities.

What remains the same?

Importantly, the practical duty outcome is unchanged in most cases. The SRO continues to accept that duty relief is available where either:

• land was held on behalf of an unincorporated association before incorporation
• land was held by at least one constituent incorporated association before an amalgamation.

The evidentiary requirements remain largely consistent, with taxpayers required to demonstrate the pre-existing ownership arrangements and the connection between the transfer or vesting and the incorporation or amalgamation process.

Additional guidance

A notable enhancement in DA‑020v2 is the inclusion of practical examples covering both incorporation and amalgamation scenarios. These examples assist taxpayers and advisors in understanding how the exemption applies in practice and provide greater transparency regarding the Commissioner’s approach.

Key takeaway

Although DA‑020v2 does not materially alter the availability of duty relief for incorporated associations, it provides a more detailed and technically accurate explanation of how the exemption operates under current Victorian legislation. Incorporated associations, sporting clubs, community organisations, and their advisors should ensure future duty analyses are framed by reference to the statutory vesting provisions in the AIR Act and the corresponding exemption in section 218, rather than the repealed provisions relied on in the former ruling.

How SW can help

SW can assist incorporated associations, sporting clubs, community organisations, and other similar entities to navigate the updated ruling, assess whether duty relief is available, and prepare the supporting evidence required by the SRO. We can also review proposed incorporation or amalgamation steps early in the process to help identify duty risks, structure transactions efficiently, and ensure the relevant statutory requirements are properly addressed.

If you would like to discuss how these changes may affect your organisation, please reach out to your SW advisor or contact our team for further assistance.

Contributors

Blake Trad | Senior Consultant, Tax

The post Victorian SRO updates duty ruling for incorporated associations appeared first on SW Accountants & Advisors.

Key principle

While the consideration often simply equals the purchase price, in many transactions the purchaser also takes on additional costs or liabilities. It’s not uncommon for contracts to include clauses requiring the buyer to pay a portion of the vendor’s outstanding taxes related to the property.

DA-070 outlines that ‘consideration’ is not limited to the sale price as stated in a contract of sale and that payments by the purchaser towards a tax liability for which the vendor is liable for in respect of the land (Assumed Tax Liability Amount) can form part of the consideration for a transfer of land.

Importantly, DA-070 clarifies that the characterisation of Assumed Tax Liability Amount as consideration will hinge on its substance as opposed to its form. Further, the SRO also notes that labels and payment directions, such as ‘to the vendor directly’ or ‘to a third party’, will not determine the characterisation. Consistent with case law, DA-070 outlines that an Assumed Tax Liability Amount forms part of the consideration for a transfer of land if, assessed at the time of transfer and viewing the transactions as a whole, is part of what moves the transfer.

DA-070 zeros in on specific taxes: land tax, windfall gains tax (WGT), the congestion levy, and rates.

Land tax

DA-070 highlights Section 10G of the Sale of Land Act (1962) (SLA), which prohibits vendors from passing on land tax to purchasers for properties sold where the sale price of the land is less than the ‘threshold amount’. Relevantly, the threshold amount from 1 January 2026 is $10.7m. Therefore, any such purported assumption of land tax would not be able to move a transfer of land and, therefore, cannot form part of the consideration.

However, where the sale price is at or above the threshold amount, then it’s legal for a contract to require the purchaser to pay some of the vendor’s land tax. In those cases, DA-070 states that such a payment will be part of the dutiable consideration, provided it’s truly part of the deal.

Windfall gains tax

Section 10H of the SLA prevents vendors from passing on an existing WGT liability to purchasers at the time of contract, in the same way that section 10G applies to land tax. Accordingly, if a WGT liability has already been assessed when the contract is signed, the vendor cannot make the purchaser pay it, therefore, an existing WGT liability cannot be included as consideration for the transfer of land.

Where no WGT liability exists when a contract of sale is made, it may be included in the contract that if a liability should arise before settlement, the purchaser will assume some or all of the vendor’s WGT liability. In those circumstances, the amount will form part of what moves the transfer of land if it is provided in addition to the sale price, such that the vendor would not transfer the land without that payment. As such, it will be considered part of the consideration.

Congestion Levy

The congestion levy is imposed each year on owners of a car park on leviable parking spaces within the levy area, with owners being solely liable or jointly and severally liable depending on the type of car park.

Under a contract of sale for a car park, the purchaser can agree to cover some or all of the vendor’s congestion levy liability by paying an additional amount. DA-070 provides that if this payment is made on top of the sale price and is essential for the vendor to proceed with the transfer, it is treated as part of the consideration for the land.

Rates

When settlement occurs, rates for the current rating period are usually adjusted so the purchaser reimburses the vendor for any rates paid covering the post-settlement period. This reflects the vendor’s pre-payment for a time when the purchaser will own the property. Under DA-070, the Commissioner will not treat these adjustments as consideration for the transfer of land.

How SW can help

Taxpayers should pay close attention to sale contracts as any assumed tax liabilities could potentially result in a larger duty liability arising.

Our State Taxes team can assist with guiding you through the complexities of land transfer duty and tax liability assumptions, ensuring your transactions complies with the latest SRO rulings.

Contributors

Blake Trad | Senior Consultant, Tax

The post Assumed tax liabilities: What counts as consideration for land transfer duty? appeared first on SW Accountants & Advisors.

With the rulings to take effect from 1 July 2025, the Victorian SRO issued draft revenue ruling DA-067 and final versions of revenue rulings DA-065 and DA-066 which consider the treatment of economic entitlements under the Duties Act 2000 (Vic) (Duties Act).  

Economic entitlements  

Under the Duties Act, an economic entitlement arises when a person gains access to the economic benefits of land such as income, capital growth, or sale proceeds, without acquiring ownership. These provisions are designed to capture arrangements that are economically equivalent to land ownership but fall outside traditional dutiable transactions. 

This includes complex commercial arrangements, such as profit-sharing agreements, development partnerships, and certain retirement village structures.

Draft DA-067: Economic entitlements – key concepts and interpretation 

Draft DA-067 aims to clarify key concepts and interpretations surrounding economic entitlements, particularly where arrangements do not involve a direct transfer of land but still confer financial benefits tied to land ownership. This draft ruling addresses longstanding industry concerns about the breadth and ambiguity of the provisions, particularly in property development and investment arrangements. 

DA-067 outlines the Commissioner’s interpretation of key concepts that are relevant to the economic entitlement regime. These have been summarised below. 

“Arrangement” 

The word ‘arrangement’ is not defined in the Act but has been interpreted in various ways in different statutory contexts. In the current context, the Commissioner will not consider an arrangement to have been made unless there is at least one binding agreement. An arrangement in this context is not used to capture matters that are merely a proposed course of action. 

“Is or will be entitled to” 

This phrase incorporates an element of futurity about when a person will be entitled to participate or receive an amount under an arrangement. It includes both current and future rights to receive a benefit under an arrangement. It includes direct and indirect entitlements, whether the person is actively involved or passively entitled.  

“To participate in” 

This is outlined to mean having a right to share in the economic benefits of the land, such as income, rents, profits, capital growth or proceeds from sale of the land. 

“Directly or through another person” 

This phrase is intended to ‘look through’ participation by a trustee or nominee acting for or on behalf of another person or beneficiary. 

DA-067 has been subject to consultation and is expected to be issued in due course. 

DA-065: Acquisition of economic entitlements via service fees

DA-065 focuses on when a service fee arrangement may be deemed to confer an economic entitlement, thereby triggering land transfer duty under part 4B of Chapter 2 of the Duties Act. 

The economic entitlement provisions provide that a person acquires an economic entitlement if an arrangement is made in relation to land (with an unencumbered value exceeding $1 million) under which a person is or will be entitled to any of the following: 

• to participate in the income, rents or profits derived from the land  

• to participate in the capital growth of the land  

• to participate in the proceeds of sale of the land  

• to receive any amount determined by reference to any of the above matters 

• to acquire any entitlement described above. 

DA-065 provides that in considering whether a service fee amounts to an economic entitlement, the Commissioner will consider the following factors: 

• the nature and scale of the arrangement, including the rights, obligations, risk allocation, and responsibilities of the parties to the arrangement. The assumption by a service provider of economic risks associated with the ownership and/or development of land generally indicates that this type of service fee will amount to an economic entitlement.  

• the nature and magnitude of the service fee, including whether the substance of the fee is remuneration for identifiable services. For example, the percentage used to calculate the fee is at market rates and the structure of the fee is similar to ordinary fees chargeable by a comparable service provider as remuneration for the identified services. The larger the percentage of an economic benefit of land used to calculate the service fee, the more indicative the service fee will amount to an economic entitlement. 

• the nature of the service provider, including whether the service provider ordinarily provides the identified services to third-party recipients within the course of its business. 

Examples where the Commissioner wouldn’t consider a service fee to be an economic entitlement include:  

• real estate agents commission which are determined by rents or proceeds of sale   

• project managers fees which are determined by reference to the proceeds of sale or capital growth of land in exchange for providing project management services to a landowner 

• trustees, fund managers, asset managers, and investment managers fees that are determined by reference to the proceeds of sale, rents, profits or capital growth of land under management of the fund.  

Retirement villages  

DA-065 considers specific circumstances in relation to arrangements involving retirement villages. 

Under lease or licence arrangements in retirement villages, a retiree’s right to reside and share in the proceeds from the first resale of their unit is not considered an economic entitlement under Part 4B of the Duties Act, as it is part of their existing lease/licence (which is generally not dutiable). However, this exemption only applies to the first resale, meaning that if the retiree has rights to proceeds from multiple resales, it may be treated as an economic entitlement. 

Similarly, payments made by outgoing residents to the retirement village owner are not considered economic entitlements, since the owner already holds full beneficial ownership of the land. 

In contrast, non-owners, such as operators who have a right to share in the proceeds of unit sales, are considered to be acquiring an economic entitlement, which must be disclosed to the Commissioner. 

DA-066: Calculation of economic entitlements  

DA-066 acts as the companion ruling to DA-065 and provides guidance on how to calculate the percentage of beneficial ownership of land taken to be acquired under an economic entitlement. 

Percentage of beneficial ownership 

Where a person acquires an economic entitlement, the percentage of beneficial ownership of land taken to be acquired will be the total of all the entitlements that the person (or associated persons) is or will be entitled to receive or acquire at the time the arrangement is entered into.  

As mentioned above, the relevant entitlements are:  

• to participate in the income, rents or profits derived from the land  

• to participate in the capital growth of the land  

• to participate in the proceeds of sale of the land  

• to receive any amount determined by reference to any of the above matters 

• to acquire any entitlement described above. 

If an arrangement grants a person only one of the above entitlements, clearly defined by a particular percentage, and no additional payments are made to that person or any associated party, the percentage of beneficial ownership deemed to be acquired will be equal to that stated percentage. 

Deeming provision 

DA-066 also provides a deeming provision that operates to deem the beneficial ownership taken to be acquired to be 100% where the arrangement is entered into: 

• does not specify the percentage of the entitlement that the person is or will be entitled to receive or acquire 

• in addition to specifying a percentage of the economic entitlement, also includes any other economic entitlement, or amount payable to, the person or an associated person or 

• entitles the person or an associated person to 2 or more of the entitlements referred to in section 32XC(1)(b) of the Duties Act. 

The deeming provision is subject to the Commissioner’s exercise of discretion, which allows the Commissioner to determine a percentage less than 100% if it is appropriate in the circumstances. 

When deciding whether to exercise discretion, the Commissioner will consider all relevant circumstances, including the total economic entitlements held by the person and their associates at the time the arrangement was made. 

If the person accurately identifies and quantifies all economic entitlements as less than 100%, the Commissioner may reduce the deemed beneficial ownership from 100% to the actual percentage of entitlements acquired. 

Calculation 

Once the percentage of beneficial ownership is established, duty is assessed based on that percentage of the land’s unencumbered value at the time the economic entitlement is acquired, not when the associated benefits are eventually received. If the land’s unencumbered value falls between $1 million and $2 million, the duty is gradually phased in using the following formula: 

[(A – $1,000,000)/$1,000,000] x B 

Where: 

• A is the unencumbered value of the relevant land and 

• B is the duty that, apart from this section, would be chargeable on the acquisition of the economic entitlement. 

How SW can help 

These rulings provide greater clarity for developers, investors, and retirement village operators, ensuring compliance with duty obligations and reducing ambiguity around complex land-related arrangements. 

Stakeholders should review existing and future arrangements considering the new rulings to ensure compliance and mitigate any risks for duty being imposed. 

Please reach out to our dedicated tax specialists to help you interpret the changes, assess your exposure, and ensure your arrangements remain compliant. 

Contributors

Rob Parker

William Zhang

The post Victorian State Revenue Office clarifies land transfer duty on economic entitlements   appeared first on SW Accountants & Advisors.

This article outlines the key changes, with commentary on practical implications, compliance requirements, and planning considerations for clients and advisors alike.

The Bill and accompanying Explanatory Memorandum provide more information on the changes discussed below.

Extension to Off-the-Plan (OTP) Stamp Duty Concession

The current OTP concession has been extended again for eligible contracts entered into on or before 21 October 2026. The concession reduces the stamp duty payable by deducting construction costs from the sale price when determining the duty liability. The concession can result in substantial stamp duty saving for the buyer.

The extension provides continued relief for buyers (home owners and investors) of newly built apartments, townhouses and units and will reduce upfront costs to make property more affordable and support housing supply growth with the encouragement of pre-sales.

As the extension is again temporary, rather than the introduction of a permanent concession, developers and advisers should encourage eligible purchases to act before the deadline of 21 October 2026.

For further information on this exemption, please refer to our previous update: New temporary off-the-plan duty concession – SW Accountants & Advisors

Land Tax Exemption for Family Violence Victim-Survivors

Individuals who flee their principal place of residence (PPR) due to family violence may now:

• Receive a land tax exemption for up to 6 years, and
• Requalify for first home buyer benefits under the Duties Act if they purchase a new home.

This reform helps prevent victim-survivors from losing critical concessions during an already traumatic life event. It recognises the economic vulnerability caused by displacement and aims to provide a financial safety net.

Advisors should ensure clients are aware of this exemption and support them in assembling evidence (e.g. intervention orders, police reports) to substantiate claims. It’s a rare intersection of social policy and taxation.

Build-to-Rent (BTR) Concessions – Expanded compliance Obligations

Victoria’s BTR regime continues to evolve, with tightened rules to further uphold the intended purpose of the concession. The key changes introduced by the Bill include:

• Genuine 3-Year Lease Offer: BTR developers must offer tenants a lease of at least 3 years. If a shorter lease is accepted, a declaration signed by both parties must confirm the longer lease was offered.
• 12-Month Lease Minimum: Short-term leases (<12 months) are prohibited from 1 January 2026, except where they follow on from a long-term lease (e.g. as an extension).
• Commissioner’s Discretion: If a property is temporarily uninhabitable (e.g. due to renovation, disaster), the Commissioner may disregard this period when assessing eligibility for BTR benefits.

These provisions are designed to enforce the long-term housing intent of the BTR regime and avoid exploitation via serviced apartments or short-term rentals. Requiring signed declarations ensures the 3-year offer is not a token gesture.

The prohibition on short leases supports stable tenancies but may reduce flexibility in tenant arrangements. BTR operators must ensure their internal processes capture offers, declarations, and tenancy records. Failure to document properly could jeopardise eligibility for land tax concessions.

The Commissioner’s discretion on uninhabitable periods provides welcome relief, offering flexibility in genuine cases of vacancy due to repairs or emergencies. However, expect the SRO to require detailed evidence for such claims.

CIPT Reforms

The Commercial and Industrial Property Tax (CIPT) regime introduced in 2024 has been updated, with reforms focused on clarity and integrity. The key changes include:

• Provisional Use Assessment: Where land lacks an Australian Valuation Property Classification Code (AVPCC), the Commissioner may provisionally determine whether it qualifies for CIPT based on actual use.
• Valuations for Non-Rateable Land: The Commissioner may now request a formal valuation from the Valuer-General for non-rateable or non-leviable land.
• Subdivision Clawback: If a parent lot enters CIPT as a partial transaction, and is subdivided within 3 years, duty will apply to purchases of child lots.

The ability to determine qualifying use without relying on AVPCCs removes administrative bottlenecks, particularly for new developments or rezoned land. Requesting VGV valuations ensures the regime can’t be sidestepped by holding land outside typical local government frameworks (e.g. charities or Crown leases). These stakeholders should re-evaluate holdings for CIPT exposure.

Finally, the subdivision clawback is a targeted anti-avoidance measure. Developers can no longer rely on staging subdivisions to defer or avoid duty once land is partially transitioned into CIPT. It underscores the need for comprehensive structuring advice from project inception.

Trustee Notification Requirements Simplified

Trustees are now only required to notify the SRO of land transactions where:

• they cease to hold land as trustee and acquire it personally, or
• they change the trust under which they hold the same land.

This significantly reduces red tape for routine changes, such as retiring/resigning trustees or administrative changes within a trust and isa change that aligns with practical trustee conduct. However, proper documentation still remains essential when changing the trust deed or transferring beneficial ownership, as these changes may still trigger duty or other tax consequences.

Penalty Tax for Recklessness

An amendment to the Taxation Administration Act 1997 (Vic) introduces a 50% penalty tax for recklessness by a taxpayer or a person acting on their behalf in respect of the taxpayer’s obligations. These penalties will be issued in respect of tax default and notification defaults.

The new penalty level signals that the State Revenue Office will adopt a firmer stance on non-compliance that stems from recklessness. This therefore underscores the importance of:

• Diligent Compliance: Ensuring that all tax obligations are met with due care an attention.
• Professional Advice: Seeking guidance from qualified tax professionals when uncertain about tax positions or obligations.
• Documentation: Maintaining thorough records of decisions and advice received to demonstrate the basis for tax positions taken.

How SW can help

At SW, our property and stamp duty experts can provide analysis and advice around the changes introduced in the Bill and identify the impacts that they can have for you.

Please contact our SW advisors for more information on how the changes may impact you.

Key contacts

William Zhang – Associate Director, Tax
Blake Trad – Consultant, Tax

The post Victoria’s State Tax Reform 2025: What Property Owners, Developers & Advisors Need to Know appeared first on SW Accountants & Advisors.

Usual Land Tax Assessment process

Each Council/Shire engages a Licensed Valuer for the purpose of valuing each property in their municipality in respect of:

1. The Capital Improved Value (CIV) – Land plus any improvements
2. Site Value/Unimproved Land Value – Land Only

If you conduct any building activity including obtaining certain permits, the council/shire can issue an Amended Rates Notice at any time.

The Council/Shire will declare a range of rates during their annual budgeting process that will then been multiplied usually by the CIV to determine the annual council/shire rates payable by the land owner.

The rates will vary depending upon the use and the relevant planning scheme that applies to the land. For instance there will generally be different rates per dollar for:

1. Residential Land containing a dwelling
2. Vacant Residential Land
3. Industrial Land
4. Vacant Industrial Land
5. Farm Land
6. Native Vegetation etc.

Objecting a Council/Shire Rates Notice

You usually have 60 days to object to a Council/Shire Rates Notice from the issue date, with most objections being:

• Inappropriate valuation
• Assessed area being incorrect
• Incorrect classification/rate applied
• Property no longer owned etc.

The Council/Shire then provides the following two values to the SRO:

1. Site Value – used to produce the Land Tax Assessments
2. CIV – used to calculate Vacant Residential Land Tax

The 2025 Land Tax Assessments take into account land held at midnight on 31 December 2024 and use the value as prepared by councils in 2024.

Is your Land Tax assessment correct?

You also have 60 days to object to a Land Tax Assessment from the issue date.

In addition, as Land Tax is a self-assessment system you need to consider whether:

1. all the land you or the entity owns is included and the apportionment is correct
2. dimensions and description of the land being valued are correct
3. is any land which you have bought/sold disclosed?
4. if you receive multiple assessments for the same own – for instance individuals name may be spelt wrong etc
5. any exemptions are correctly applied – for instance primary production land, principal place of residence, exempt status etc
6. whether Absentee Owner Surcharge should be or should not be charged
7. whether any Vacancy Residential Land Tax has been correctly assessed
8. land subject to the Trust surcharge has been correctly assessed
9. correct ownership is disclosed – trust as opposed to company etc.

It is often easier to object against the Council Rates Notice  as in essence this information is then fed through to the SRO.

Where the valuation is not appropriate, it is prudent to obtain supporting evidence which in many cases will  include a formal Valuation from a Property Valuer to support a lower and correct valuation.

There is a cost/benefit assessment to be done when lodging an objection.

How SW can help

To assist you we can:

• review the Land Tax Assessments to ensure that you are correct – remembering that it is a self-assessment system
• consider whether the Site Value is appropriate and if not consider lodging an objection.

The post Land Tax Assessments 2025 | What you need to know appeared first on SW Accountants & Advisors.

This paradigm shift for Victorian non-profit private schools mandates proactive measures in establishing processes and templates, upskilling staff, and addressing potential challenges, ensuring a seamless transition into compliance with payroll tax obligations. While other jurisdictions have not announced any similar changes, the Victorian legislation paves the way for other jurisdictions to follow suit. 

Starting from 1 July 2024, Victorian non-profit private schools with an income per student exceeding $15,000 will be subject to payroll tax. Employers must assess their own liability for payroll tax, regularly submit returns and make payments, typically monthly, to the Victorian SRO.

While navigating these changes seem supposedly straightforward, there is a good reason the SRO is one of the most active agencies with their data matching and compliance programs. Schools need to ensure that processes are well designed, to avoid common errors, minimising manual input and intervention and align with other submissions to other Government authorities (e.g. workers compensation, trainees and STP). This will also prevent overburdening existing employees with another time-consuming monthly process.

How to prepare for payroll tax changes

At a high level, schools newly subject to payroll tax will need to take steps before the obligations begin, including:

1. register for payroll tax and PTX express
2. review internal systems, processes and data to address risk areas such as:
   • treatment of pay codes | ensure that pay codes are set up correctly to accurately disclose taxable wages in the required categories, including salaries, commissions, leave, allowances, superannuation, and more
   • treatment of contractors | the relevant contract provisions extend payroll tax obligations to all service-based arrangements, with taxpayers needing to assess each non-employee worker against a series of 8 exclusions
   • grouping | The payroll tax grouping provisions can be complex, and if caught can result in the reduction of available payroll tax thresholds
   • data matching and investigation risks | it is not sufficient to get the taxable wage amount correct. Schools should ensure that disclosures align with other submissions to minimise the risk of investigation.
3. understand their systems and available data and developing a robust monthly process, including:
   • a process and documentation for data extraction and review
   • a working template for calculations
   • a review and lodgement process and controls
   • documentation of important payroll tax positions, process and methodology.
4. maintain ongoing processes for compliance with changing law and regular testing of existing processes.

How SW can help

As this is uncharted territory for many schools, our SW payroll tax experts are offering a comprehensive package to assist school finance teams get up and running with their payroll tax processes. This package includes:

• understanding the payroll systems and data, as well as the process for engaging contractors.
• working with the team to get detailed descriptions of pay codes and determine payroll tax positions (including recommendations to restructure pay codes if needed).
• designing an Excel-based model (e.g. using PowerQuery/PowerPivot) in conjunction with the school for monthly and annual payroll tax reconciliations.  This template is designed to source information from raw data files (e.g. payroll reports) and produce the required breakdown for payroll tax returns with minimal manual manipulation.
• documentation of methodology and positions (including a matrix of pay codes, descriptions and payroll tax positions).
• payroll tax training for staff members including use of the model.
• assistance with the preparation of the first payroll tax return and ad hoc support for 6 months for queries that arise after handover process
• review of the first annual payroll tax reconciliation.

We offer complementary initial discussions for us to understand the school systems and processes as well as data sources as well as highlight discuss any risk areas.

Contributors

Zainab Ayub

The post Victorian private schools navigate new payroll tax norms appeared first on SW Accountants & Advisors.

On 30 August 2022 the State Revenue Office of Victoria (SRO) released a draft Ruling on the operation of the economic entitlement provisions contained in the Duties Act 2000 (Vic).

Draft Ruling DA.065 Acquisition of economic entitlements in relation to land (service fees) formalises the guidance previously published on the SRO website in relation to arrangements potentially dutiable under these provisions.

Much of what was previously published is contained in the draft ruling, however the ruling does include some further examples. There is still some significant uncertainty as to the operation of the provisions and further clarity in some instances would be helpful prior the ruling being finalised. The SRO are accepting comments in relation to the draft ruling up until 28 September 2022.

Economic entitlement provisions

Broadly, the economic entitlement provisions will apply where there is an arrangement in relation to land (with an unencumbered value that exceeds $1,000,000) under which a person has an entitlement:

• to participate in the income, rents or profits derived from the land
• to participate in the capital growth of the land
• to participate in the proceeds of sale of the land
• to receive any amount determined by reference to any of the above matters
• to acquire any entitlement described above.

The provisions are broadly drafted and paragraph IV as it is currently worded has the potential to apply to any ‘fee’, ‘interest’ or other amount that is calculated by reference to the income, profits, rents or proceeds of sale derived from the development of the land.

The draft ruling highlights the intention of the provisions to impose duty on arrangements where a person, without acquiring an ownership interest in land, effectively obtains rights and benefits relating to the land that are economically equivalent to ownership interests. Labelling an amount as a ‘fee’ or ‘interest’, or something else, will not avoid the economic entitlement provisions if they otherwise apply

Outcome of draft ruling

The information previously published on the SRO website broadly details situations and examples which may commonly arise with respect to land dealings and provides guidance on whether the economic entitlement provisions would apply.

The draft Ruling builds on this guidance and considers two issues:

• whether ordinary fees for service may amount to an economic entitlement; and
• circumstances where an acquisition of a share or unit may amount to an economic entitlement despite not attracting landholder duty.

Fee for Service

The draft Ruling states that fees may be tied to the proceeds associated with land and/or its development but not amount to an economic entitlement. This is the case where third party service providers receive ‘genuine industry fees’ for service.

Examples include:

• real estate agents, including executors and trustees of deceased estates – whose fees are based on the proceeds of sale of land
• architects – whose fees can include a percentage of building costs
• project managers – whose fees can include a percentage of project value. Payment of the fees cannot be contingent on / calculated by reference to the performance of the project/development
• planning consultants – whose fees can include a percentage of the value uplift after a precinct structure plan is obtained
• private advisory firms – that may receive a contingency fee for assisting a landowner to take their land to market or negotiate transaction documents
• lenders and financiers – who receive interest for providing finance to a development. The interest/fee cannot be tied to the performance of the development. An example of such an arrangement is a standard loan facility with interest at market rates.

The Ruling follows on to provide that there is no need to lodge or pay duty where a person provides a ‘genuine’ service in relation to land and:

• is normally engaged in a full-time capacity in providing those services
• the agreed fee/rate is within industry parameters, and
• the person is unconnected (i.e. not an associated person) to any other person who has an economic entitlement in relation to the land.

Limitations of the ruling

Whilst the examples provided have been included to avoid confusion, it is our view that more clarity is still required as the ruling does not articulate the principles which are being applied by the Commissioner in the examples.

In some examples the conclusion is that the fee is not an economic entitlement, however it is not clear whether this is because those examples actually fall outside the definition of an economic entitlement in the first place. For example, an architect who charges fees on a percentage of building costs does not actually acquire any entitlement to participate in the income, rent or profits derived from the land. Similarly, financiers who are entitled to interest calculated on the loan advanced do not have an entitlement to participate in the income, rent or profits derived from the land. In these circumstances, it is irrelevant whether the fees are “genuine” and within “industry parameters”.

In addition, the draft Ruling provides no guidance as to what are ‘genuine’ fees or whether a ‘fee/rate is within industry parameters’. Industry parameters cover a broad range and depend upon multiple factors.

Acquisition of a share or unit.

The draft Ruling states that:

The economic entitlement provisions contained in Chapter 2 of the Act can also apply to acquisitions of shares in companies and units in unit trust schemes that may be outside the scope of the landholder provisions in Chapter 3 of the Act. As a result, a liability may arise under Chapter 2 where no liability would arise under Chapter 3 because the interest acquired is below the relevant acquisition threshold. However, this would only occur where the acquisition of units, shares or other security interests entitle the holder to participate in the income, rents or profits, capital growth or proceeds of sale from particular land held by the entity.

The ruling provides an example where specific classes of units might be dutiable under the economic entitlement provisions, although not dutiable under the landholder provisions (as the interest acquired is below the relevant acquisition threshold). The ruling states that the economic entitlement provisions would only apply where the shareholder/unitholder is entitled to participate in the income, rents or profits, capital growth or proceeds of sale from particular land held by the entity. Where shareholders/unitholders are entitled to income/proceeds etc. that are general in nature and not specific to a particular land held by the entity, the economic entitlement provisions would not apply.

The example provided in the ruling is somewhat artificial as it involves the creation of a new class of units issued to a potential investor who wants to acquire one of the shopping centres (Property A) held in the Trust, but not through a conventional purchase. The new class of units entitles the investor to 100% of the new income, rents and profits associated with one of the properties and entitlement to the trust’s property upon wind up to the extent that the value of Property A bears to the total value of both properties.

It is our view that the anti-avoidance provisions contained in the landholder provisions should apply to such arrangements. The economic entitlement provisions should have no application to the issue of units and shares. Although the rights to dividends and capital of a particular class or units or share may be determined by reference to returns from a particular property or a particular pool of assets, the dividend or capital payments are not an entitlement to participate in the income, rent or profits derived from the land or capital growth (except in very unique circumstances).

How we can help

Whilst the ruling somewhat builds on the previous information published on the SRO website, it still does not provide the guidance needed by the property industry to understand what arrangements would be captured by the economic entitlement provisions. This unfortunately means that taxpayers seeking certainty will need to seek a private ruling from the SRO.

SW is currently involved in a number of submissions, so please reach out to the team if you have questions, comments or feedback.

Contributors

Robert Parker, Consulting Director, Tax

Carmelin De Francesco, Senior Manager, Tax

The post Land transfer duty – Acquisition of economic entitlements in relation to land (service fees) appeared first on SW Accountants & Advisors.

The seminar will discuss the latest tax news and changes and provide an update on the following:

• What’s new and recent developments
• FBT recap
• Superannuation & Amnesty update
• Global mobility & Tax residency insights
• Employee Share Scheme trends
• SRO / OSR payroll tax activity
• Other employment tax issues

Who should attend?

• Tax managers and their support staff

• Human resource management/remuneration and benefits managers

• Other staff interested in employer tax compliance, such as CFOs, financial controllers, CEOs and directors. 

Presenters

Stephen O’Flynn – Partner
Sam Morris – Partner
Tim Hogan-Doran – Partner
Helen Wicker – Partner
Justin Batticciotto  – Associate Director
David Wilson – Associate Director
Rahul Sanghani – Senior Manager

Event details 

There will be five seminars hosted over the duration of two weeks, all of which are free to attend. If you would like to register for any of the following events, or know of someone who may be interested, please register using the links below.

Brisbane

Employment Tax Update (Co-hosted with Chartered Accountants Australia and New Zealand)
Date: Tuesday, 10 March 2020
Time: 12pm – 2pm
Venue: Brisbane Marriott Hotel, 515 Queen Street, Brisbane QLD 4000

Sydney

Employment Tax Update *NOW FULL
Date: Wednesday, 11 March 2020
Time: 8am – 10am
Venue: ShineWing Australia, Level 8, 167 Macquarie Street, Sydney NSW 2000

Melbourne

Employment Taxes Update: Corporate *NOW FULL
Date: Tuesday, 17 March 2020
Time: 8am – 10am
Venue: ShineWing Australia, Level 10, 530 Collins Street, Melbourne VIC 3000

Employment Taxes Update: Not-for-profit
Date: Wednesday, 18 March 2020
Time: 8:30am – 10:30am
Venue: ShineWing Australia, Level 10, 530 Collins Street, Melbourne VIC 3000

Employment Taxes Update: Government
Date: Thursday, 19 March 2020
Time: 8:30am – 10:30am
Venue: ShineWing Australia, Level 10, 530 Collins Street, Melbourne VIC 3000

For more information about these events, or if you have any queries, please contact the ShineWing Australia Marketing team via marketing@sw-au.com

We look forward to your attendance!

The post Employment Taxes Update 2020 appeared first on SW Accountants & Advisors.

Experienced property developers have been patiently waiting to capitalise on an anticipated property market downturn after being priced out of many opportunities over recent years. With a number of these developers preparing to act now that property prices are beginning to trend upward again, changes to tax and duty legislation have reared their heads. Unfortunately for these developers, these changes provide a new cause for uncertainty surrounding feasibilities.

In particular, the wide reaching changes to the economic entitlements provisions in the Victorian Duties Act put developers at risk of paying duty more than once. Structures that have previously been commonplace may no longer be suitable for current and future developments.

Understanding the implications of the legislation changes

Under the new rules widely used development management agreements, project management agreements, joint venture agreements and lending agreements are now at risk of triggering duty.

Following the recent changes, the State Revenue Office (SRO) provided guidance on how the Commissioner will apply the new law, however there are very few test cases for advisors and developers to refer to as yet. The SRO is now seeking to provide guidance on specific arrangements if any developers are willing to submit their structure for scrutiny.

Potential risks for developers

One potential at risk arrangement may involve bringing an equity provider into the development after an interest in land has been obtained.

Whilst it is recommended to have all equity participants in place upfront and to have the entire development structure and all associated agreements in place before signing a land purchase contract, practically this is often a difficult or even impossible task.

Actions for developers

Developers should review their pro-forma documentation before proceeding with any new developments to ensure any duty risks are understood and addressed.

How can we help?

Reach out to one of our property or tax experts to discuss the duty implications on your development structures and agreements and avoid being caught out by the SRO.

Get in touch

Our experts can assist with further information.

Daren McDonald

E dmcdonald@sw-au.com

Blake Rodgers

E brodgers@sw-au.com

The post Property development update appeared first on SW Accountants & Advisors.

The seminar will discuss the latest tax news and changes and provide an update on the following:

• What’s new and recent developments
• FBT recap
• Superannuation and amnesty update
• SRO / OSR payroll tax activity
• Global mobility / Tax residency trends
• Employee share schemes insights
• Other employment tax issues

Who should attend?

• Tax managers and their support staff

• Human resource management/remuneration and benefits managers

• Other staff interested in employer tax compliance, such as CFOs, financial controllers, CEOs and directors. 

Presenters

Stephen O’Flynn – Partner
Sam Morris – Partner
Helen Wicker – Partner
David Wilson – Associate Director
Leo Luan – Associate Director
Justin Batticciotto  – Associate Director
Rahul Sanghani – Senior Manager

Event details 

There will be five seminars hosted over the duration of two weeks, all of which are free to attend.

Melbourne

Employment Taxes Update: Corporate
Date: Tuesday, 5 March 2019
Time: 8:00am – 10:00am

Employment Taxes Update: Not-for-profit
Date: Wednesday, 6 March 2019
Time: 8:30am – 10:30am

Employment Taxes Update: Government
Date: Thursday, 7 March 2019
Time: 8:30am – 10:30am

Brisbane

Employment Tax Update
Date: Tuesday, 12 March 2019
Time: 12pm – 2pm

Sydney

Employment Tax Update
Date: Wednesday, 13 March 2019
Time: 8:00am – 10:00am

For more information about these events, or if you have any queries, please contact the ShineWing Australia Marketing team via marketing@sw-au.com

We look forward to your attendance!

The post Employment Taxes Update 2019 appeared first on SW Accountants & Advisors.