Overview of the EE transfer duty provisions

Victoria's expanded 'economic entitlement' (EE) duty regime came into operation on 19 June 2019 (see our Technical Update: Victorian State Budget – Important Duty and Land Tax Changes for 2019).

Under the Duties Act 2000 (Vic) (Duties Act), a person will acquire an EE if they are, or will be, entitled (whether directly or through another person or entity) to any one or more of the following in respect of 'relevant land' in Victoria which has an unencumbered market value of more than $1m:

a) to participate in the income, rents or profits derived from the relevant land;

b) to participate in the capital growth of the relevant land;

c) to participate in the proceeds of sale of the relevant land;

d) to receive any amount determined by reference to (a), (b) or (c); or

e) to acquire any entitlement described in (a), (b), (c) or (d).

'Relevant land' is broadly defined to include Victorian freehold land and an interest in 'fixtures' (the term 'fixtures' includes fixtures at law and also any other items fixed to land).

Where a person acquires one or more EEs in Victorian land, subject to administrative carveouts provided by the Victorian Commissioner of State Revenue (Commissioner) and the State Revenue Office (SRO):

a) the person is deemed to have acquired beneficial ownership of the relevant land (importantly, in certain circumstances, the default position is that the percentage interest acquired is 100%, with the Commissioner having discretion to determine a lesser percentage); and

b) the person must make a lodgement with (and pay duty to) the Commissioner within 30 days of obtaining the relevant EE(s). Duty is calculated based on the market value of the relevant land at the time that the entitlement is acquired.

Industry uncertainty

The EE provisions are drafted extremely broadly, giving the Commissioner power to tax a wide range of transactions. Since the introduction of the expanded EE rules, the property industry and advisors have had to interpret and advise on the provisions with reliance on certain parameters for administrative relief set out in non-binding SRO website guidance and draft public rulings issued by the Commissioner.

For example, real estate agents typically receive a fee calculated as a percentage of the proceeds of sale of land (e.g. 2%). If the EE provisions were applied literally, the real estate agent would be liable to duty calculated by reference to 2% of the market value of the land. Guidance from the SRO provides that the EE provisions would not apply to arrangements of this nature given that they are fees for service. There is however no legislative basis for such concessions and uncertainty arises in circumstances which deviate from examples given in the SRO guidance and draft public rulings.

In addition to uncertainty as to whether the Commissioner will treat a particular arrangement as an EE, in various scenarios (particularly in the context of development agreements or 'project delivery agreements') there has also been significant uncertainty as to how EE duty is to be calculated.

New SRO guidance

On 30 June 2025, the Commissioner:

• finalised Revenue Rulings DA-065 and DA-066 following the issue of drafts in 2023 – the rulings covering the treatment of 'service fees' and EE calculation methodology respectively; and
• issued new Draft Revenue Ruling DA-067.

Revenue Ruling DA-065 – service fees

Revenue Ruling DA-065 sets out the Commissioner's view as to the application of the EE provisions to 'service fees'. It also provides guidance on the application of the provisions to certain arrangements involving retirement villages.

The Ruling, which does not appear to materially differ from the draft version, seeks to draw a distinction between entitlements obtained by a developer under a development agreement (e.g. a share of proceeds or profits on the sale of land) and 'remuneration for identifiable services in connection with the land'. The former scenario is flagged as giving rise to EE duty where a developer shares in the benefits of a development, while the latter scenario may be treated as non-dutiable where 'the fee arrangement was not entered into to provide the service provider with rights and benefits which are economically equivalent to an ownership interest in the land'.

The Commissioner indicates that a service fee is unlikely to be treated as a dutiable EE where the service provider:

• does not assume risks associated with the ownership or development of land;
• charges a percentage (e.g. of land sales revenue or profit) which is at a market rate and the structure of the fee is similar to ordinary fees chargeable by a comparable service provider; and
• ordinarily provides the identified services to third-party recipients within the course of its business.

In this regard, the Ruling provides comfort in the case of 'vanilla' entitlements acquired by certain service providers such as real estate agents, project managers, private advisory firms and fund managers. However, like the draft version before it, the Ruling sets out non-statutory criteria with no clear safe harbours or 'bright line tests' for what is in effect a non-binding non-statutory exemption. Consequently, there remains a significant degree of uncertainty for the property industry and advisors, particularly where an entitlement differs even slightly from the perceived market standard. Even where an arrangement is on all fours with a 'non-dutiable' example in the Ruling, if the Commissioner were to depart from the Ruling, it appears that a taxpayer may have no legal recourse.

The Ruling contains comments particularly relevant to the retirement village industry. The Ruling indicates that a resident under a lease who has the right to participate in proceeds of sale will not be treated as obtaining a dutiable EE. However, where another person who is not the owner of the land / retirement village unit has an entitlement to participate in the proceeds of sale of a unit (e.g. as part of a deferred management fee), the Ruling suggests that this would be a dutiable EE where the relevant land has a market value of more than $1m. This is particularly relevant for retirement village operators, where it is not uncommon for the operator to be a different entity to the landowner.

Revenue Ruling DA-066 – calculation of EEs

As noted above, in certain circumstances the default position under the EE provisions is that a taxpayer is to be assessed based on a deemed 100% acquisition of beneficial ownership of the relevant land. Such circumstances include where the relevant percentage is not specified in the arrangement or where a taxpayer obtains more than one EE.

The Commissioner has the discretion to determine a lesser percentage if he considers it appropriate in the circumstances. Accordingly, public guidance as to how the Commissioner may exercise this discretion is critical.

Revenue Ruling DA-066 indicates that the Commissioner will assess duty by reference to an interest of less than 100% if there is evidence to support an appropriate lesser percentage. Such evidence may include methodology set out in an agreement (e.g. a proceeds or profits 'waterfall clause'), a financial model or feasibility study. This highlights the importance of parties carefully documenting not only their agreements but also the models and assumptions that underpin them – noting that this can be critical for the purposes of an EE duty assessment. The Ruling suggests the Commissioner may prefer feasibility studies or cost plans that are prepared by an independent third party, however as a practical matter we note that this may not be the standard practice of many developers.

The finalised version of the Ruling contains various examples setting out the Commissioner's approach to calculation of the relevant EE percentage (including two new examples prepared following consultation on the draft). The examples will form a useful reference going forward.

Draft Revenue Ruling DA-067 – key concepts and interpretation

In addition to finalising the rulings outlined above, the Commissioner has also released Draft Revenue Ruling DA-067 for public consultation. This draft seeks to provide guidance on various key issues that arise due to the breadth (and in some cases ambiguity) of the EE provisions.

Noteworthy issues raised in the draft ruling include (but are not limited to) the following:

• The EE provisions can only apply where there is an arrangement involving 'relevant land' with a value that exceeds $1m. Interestingly, the Commissioner states his view that if an arrangement covers multiple parcels of land with an aggregate value in excess of $1m, the EE provisions can apply even if no single parcel of land reaches that value threshold. This view could create a battleground with industry, noting that it is not uncommon for builders to take a share of a landowner's sale proceeds on developments where each specific lot has a value of less than $1m.
• The law remains unclear as to whether the EE provisions can be enlivened by an arrangement made in respect of land that is not owned by the purported grantor of an entitlement at the time of entry into the arrangement. The Commissioner indicates that he will seek to assess EE duty if and when a purported grantor of an entitlement acquires its interest in the relevant land.

The public consultation period for the draft ruling will conclude on 28 July 2025.

The latest round of EE guidance from the Commissioner is by no means a panacea to problems which can only be properly addressed by legislative reform. Public rulings do not have the force of law, and we have seen recent examples of Courts being critical of the Commissioner taking an administrative approach without legislative support. That said, the rulings give critical insights as to the Commissioner's approach to the administration of the EE regime and are therefore a necessary reference.

Please contact us for advice if you have any questions regarding how the EE provisions might impact you, your business, or your investments.