Does your land contract have “possession” and “land tax” clearly defined?

Pursuant to s 15 of the Land Tax Act 2005 (Vic) (Act), a purchaser under a contract of sale of land is deemed to be the owner of the and where the purchaser has taken possession. This provision allows a vendor to shift the burden of land tax once possession has passed. However, the definition of possession is not a term of art and will vary from contract to contract.

The High Court decision of Highlands Ltd v Deputy Federal Commissioner of Taxes (SA) [1931] HCA 38 in determining if “possession” has passed established that the purchaser must:

  1. hold “de facto possession”; and
  2. be in the position “in intended execution of the agreement for the sale of land”.

In the case of Kameel Pty Ltd v Commissioner of State Revenue [2016] VSCA 83 (the Kameel Case), it was held during the primary decision by VCAT that the contract of sale of land did not provide for an explicit right of possession to the purchaser, instead, it alluded to a supplementary document called “Heads of Agreement” which only allowed the purchaser, in exchange for a deposit pursuant to the Heads of Agreement, to enter the premises and commence construction of a restaurant. It was a further term of the Heads of Agreement that upon registration of the subdivision, the deposit payable under the Heads of Agreement would be applied as the deposit under the contract of sale of land.

In light of the above, VCAT held that since the purchaser had no explicit right of possession until the registration of the subdivision and the transfer of the deposit towards the deposit with respect to the contract of sale of land, the purchaser did not take possession of the land pursuant to s 15 of the Act and accordingly, the vendor was liable to pay land tax.

The VCAT decision was subsequently appealed whereby the Supreme Court of Victoria held that:

VCAT was correct in its finding that possession had not passed as the purchaser was not “in intended execution of the agreement for the sale of land”. Further, the Supreme Court established the following principles when determining whether the purchaser was “in intended execution of the agreement for the sale of land”:

  • The purchaser’s possession must be consistent with the contractual arrangement between the parties, whether explicit or implicit;
  • A purchaser can be in possession for the purposes of s 15 of the Act even if there are no explicit terms to that effect; and
  • it is not enough for a party to claim that possession has passed merely because the contract is still on foot and has not be repudiated by either party.


When negotiating a contract for sale, ensure that:

  • The parties’ obligation to pay land tax are explicitly stated in the contract, especially in the event of termination; and
  • “Possession” and “licence to enter or occupy” (and variants) are explicitly defined.

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This article is not legal advice and should not be relied upon as legal advice. All articles found on this website are intended to provide informative information, nevertheless, in many instances legislation and case law has been simplified and/or paraphrased. If you would like personal legal advice based on your current circumstances, you should contact MurdockCheng Legal Practice for a free consultation.