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The "economic entitlements" provisions in Victoria's Duties Act create a tax on certain arrangements where a person acquires a right to share in the economic benefits of land without acquiring the land itself.
This would apply if you receive a percentage of profits, income, or sale proceeds from someone else's land (a common scenario in property development agreements). You can be deemed to have acquired a beneficial interest in that land and required to pay land transfer duty on it.
Economic entitlements duty was introduced to prevent duty avoidance through creative joint venture structures.
As part of our Property Taxes in Victoria series we provide a detailed overview of the most common property duties and land taxes. Please note that tax laws, thresholds and tax rates are subject to annual revisions, so check the relevant government website for the latest information.
When Economic Entitlement Duty applies:
If a person (or entity) enters into an arrangement relating to land in Victoria under which they are entitled to an economic benefit from that land – for example, entitled to receive a percentage of future rental income, or a share of the profits from its sale or development – then that person is deemed to have acquired a corresponding proportion of the beneficial ownership of the land.
Duty is then assessed on that proportion. Notably, if the entitlement is 50% or more, the law currently deems it as if 100% of the land was acquired (meaning full duty on the entire land's value).
The Commissioner has discretion to allow a lesser percentage in some cases, but generally 50%+ triggers full duty.
Examples of what is an economic entitlement:
A developer agrees with a landowner, "I'll fund, manage and build a project on your land in exchange for 60% of the profits when the units are sold."
The developer didn't "buy" the land (a joint venture agreement or similar is agreed to) and traditionally no duty would arise.
Now, because they acquired a 60% economic entitlement, they are treated as acquiring the land beneficially and must pay duty on 100% of the land's value.
Another example is where a service provider's fee is tied to a project's success (say an architect gets 10% of sale proceeds); this also can be an economic entitlement arrangement subject to duty on that 10% slice of land value. These scenarios can be complex and sometimes exemptions may apply.
Common risks:
The main risk to developers and others is unwittingly triggering a duty liability through contracts or agreements. Parties may focus on the business deal (profit-sharing, etc.) and not consider the potential tax implications of the economic entitlements duty.
Also, timing and lodgement are key: if you do have an economic entitlement arrangement, you must lodge details with the SRO and pay duty within 30 days. Penalties and interest for late payment could apply.
There are carve-outs and exemptions – for example, certain corporate group restructures or if the person later actually purchases the land, some adjustments in duty can occur. Navigating those requires careful legal consideration. The risk is highest for developers, option holders, or investors structuring deals with landowners that give them a share in land outcomes without an outright transfer.
If you are a landowner or developer about to sign any agreement to share profits or receive a cut from land you don't own, consult a property tax lawyer first.
Additionally, if an economic entitlement duty assessment does arrive, a lawyer will be needed to review it and see if any exemptions or rulings can be applied.
How to contest:
If you receive a duty assessment for economic entitlements and believe it's not warranted, you can object. Grounds might include arguing the arrangement falls under an exemption or is not an "economic entitlement" as defined.
The objection process is the submission of a written objection to the State Revenue Office's assessment office. If dissatisfied, escalate to VCAT or the courts. It's worth noting that because these rules are relatively new (commenced in 2019).
If you need advice and guidance with State Duties and taxes contact our team for comprehensive advice.
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.
