Draft SRO Ruling DA-070: A “tax on tax”? Or an overreach in the meaning of consideration?

The State Revenue Office has released Draft Ruling DA-070 on when a purchaser’s assumption of the vendor’s land tax, windfall gains tax (WGT) or congestion levy forms part of the “consideration” for a land transfer. 

Many in the property and tax sector are calling it a “tax on tax”. The deeper issue, however, is the ruling’s significant expansion of what constitutes “consideration” in Victorian duty law and the flow on effects we may see. It reads less like a principled interpretation and more like an attempt to widen the duty base in a state where property holders already face heavy tax burdens. 

Below are the key issues taxpayers should understand. 

What does draft ruling say? 

The ruling states that if a purchaser agrees to assume the vendor’s land tax, WGT or congestion levy, that amount forms part of the dutiable consideration. 

The SRO relies heavily on the cases of Commissioner of State Revenue v Lend Lease Development Pty Ltd [2014] HCA 51 (Lend Lease), and Commissioner of State Revenue v 1043 Melton Highway Pty Ltd [2020] VSC 820 (Melton Highway), which describe consideration as anything that “moves the transfer” when looking at the transaction as a whole. It then presumes that a vendor would not transfer the land unless the purchaser agreed to assume the relevant tax (“Assumed Tax Liability Amount”). 

Is it really a “tax on tax”? 

Calling this a “tax on tax” is a tidy slogan, and it reflects the market’s frustration. But strictly speaking, duty is not being levied on the statutory land tax or WGT liability itself. Instead, duty is being imposed on the contractual obligation undertaken by the purchaser to pay an amount the vendor requires as part of the deal. 

In our opinion the underlying issue is not the tax being adjusted – it is the SRO’s expansive and largely unprecedented interpretation of what counts as consideration. Commercially, adjustments for land tax or the congestion levy have long been treated as just that: mechanical settlement adjustments, not components of the purchase price. The draft ruling rebuts this distinction. It equates an adjustment payment with a payment that “moves” the transfer, even though: 

• adjustments are standard contract or formula-based, not commercially negotiated like the purchase price 
• they do not reflect the property’s value 
• they simply allocate holding costs across periods of ownership 

This is where the SRO’s approach becomes difficult to reconcile with commercial reality. A principle developed for complex, structured transactions (Lend Lease) is now applied at maximum breadth to routine settlement mechanics to maximum Victorian duty revenue. 

The legal hook may exist – but the stretch is unmistakable and broad. 

Exclusions  

• Land Tax: Section 10G of the Sale of Land Act 1962 invalidates any contract term requiring a purchaser to pay the vendor’s land tax where the sale price is below the annually indexed threshold ($10 million in 2024), meaning these amounts cannot form part of consideration. The ruling instead focuses on transactions above that threshold.  
• WGT: Section 10H of the Sale of Land Act 1962 invalidates any contract term requiring a purchaser to assume the vendor’s WGT liability. However, if no liability exists when the contract is signed, the parties can agree that the purchaser will cover any WGT assessed after the contract date but incurred before settlement. Such payments are likely to be treated as consideration and dutiable under the draft ruling.  
• Rates: The SRO states that post-settlement rate adjustments are not consideration as they reflect the vendor’s pre-payment of rates for the post-settlement period. Land tax adjustments are calculated in much the same way as rates therefore this distinction is hard to defend in principle and underscores the selective nature of the SRO’s reasoning in this ruling.  

The ruling includes a carve-out… but it’s also a warning 

The draft ruling states expressly that it does not address the meaning of “consideration” in other parts of the Duties Act. But that caveat is itself a reminder of how broad the SRO considers the concept of consideration already is under the Act – and how easily it can be expanded when convenient for revenue extraction from the captive Victorian real estate market. 

We regularly see the breadth of “consideration” arise in other contexts, including: 

• Property Passing to Beneficiaries of Trusts – sections 36, 36A and 36B: Section 36C makes it clear that the assumption of a mortgage will not, by itself, amount to consideration that jeopardises the exemptions available under sections 36, 36A and 36B. However, that protection only goes so far. We regularly see situations where additional steps taken by beneficiaries inadvertently give rise to dutiable consideration

Two common examples include: 

• • Loan forgiveness between beneficiaries Where a beneficiary forgives a debt owed by another beneficiary or by the trust to the beneficiary as part of receiving a particular piece of property. In substance, the beneficiary is “paying” for the property by giving up a financial right. This can amount to consideration, potentially disqualifying the duty exemption.
  • Balancing or equalisation payments: If one beneficiary receives property under the trust and makes a payment to another beneficiary to equalise entitlements, that payment is also a form of consideration. The Duties Act looks through the arrangement: if money (or value) moves between beneficiaries as part of enabling the transfer, the exemption may not apply. 

In both scenarios, the parties often view the arrangement as a family or trust-level reallocation, not a purchase. But the Duties Act focuses on the transactional substance, not the family context. A beneficiary who gives up value to secure the property is, in effect, treated as having “paid” consideration for it.  

• Deceased estates – s 42 transfers: Where property of a deceased estate is transferred to one beneficiary who compensates the others to “even up” entitlements, that payment is dutiable consideration.

Many executors assume (incorrectly) that because the overall transfer relates to a deceased estate, no duty arises. But the Duties Act taxes the transaction, not the family arrangement: any amount paid from one beneficiary to another to secure a  transfer of property from the estate to the first mentioned beneficiary  is consideration and can render the deceased estates exemption to not apply with duty levied on the entire transfer.  

Against that backdrop, Draft Ruling DA-070 signals that the SRO is willing to push the already-broad definition even further – and to do so in a way that captures amounts that most taxpayers would never intuitively regard as part of the “price” paid for the land. 

A revenue grab in a state already pushing property holders to breaking point 

Even before this draft ruling, Victorian property taxes were: 

• the highest land tax imposts in Australia, 
• subject to multiple new surcharges, 
• coupled with the onerous WGT regime, and 
• layered on top of rising council rates and the congestion levy. 

Against this environment, the draft ruling feels less like an application of case law and more like a strategic Victorian State Treasury expansion of the duty base. The more the SRO can characterise amounts as “consideration”, the more duty is payable – even where the payment is clearly not, in substance, part of the price for land. It also positions Victoria as an outlier nationally, the only jurisdiction taking this approach. 

Conclusion 

The draft ruling is concerning: an expansive and arguably opportunistic widening of what constitutes dutiable consideration, applied in a real estate market already under severe tax pressure. Victorian taxpayers should be alert to the implications.  

At KHQ, we have specialists across the key areas impacted by these issues, including: 

• Tax advisory:  Advising on transaction structures to identify and quantify duty and tax exposures, with end-to-end support for revenue office audits and reviews. We also assist with transferring assets out of existing structures in a tax-efficient manner maximising the proper use of the remaining exemptions. 
• Estate & succession planning: Advising executors and beneficiaries on deceased estate transfers, including equalisation or balancing payments, and structuring and administering estates to achieve duty-efficient outcomes especially under structured Deeds of Family Arrangements. 
• Property & conveyancing: Reviewing and preparing contracts of sale to identify exposure to duty risks and advising on drafting and negotiation to minimise unintended consequences especially between family or associated parties. 

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