On 17 November 2020, the NSW Treasurer announced proposed changes to stamp duty including an election by property purchasers to pay a smaller annual tax in lieu of a one-off up-front lump sum based on the value of the property. Stamp duty has become a major barrier to anyone saving for their first home or wanting to upgrade. It is a transaction-based tax paid on the transfer of land by the purchaser and levied on the sale price, which comprises the value of the land and buildings on the property.
Sydney’s current median property price is $1.15M. Currently, stamp duty on a $.15M purchase is a one-off up-front lump sum amount of $48,500. If implemented, the changes would allow a buyer to ‘opt-in’ to a new scheme where buyers would not have to pay anything up-front.
Once a property has been traded under the new scheme it would remain annually taxed for subsequent owners. Existing home-owners will not be affected until they buy another property.
It is proposed that the new annual property tax would consist of a fixed annual rate of $500 plus 0.3% of the unimproved value of the land. This approach is broadly in line with how council rates are calculated. If a buyer opts in for the new annual property tax, then keeping with the same Sydney median property price example, a home-owner would pay about $2,230 annually. That amount would increase with indexation over time.
The fixed annual rate of $500 and 0.3% of the unimproved value of the land would be the rate applicable to residential land that is owner occupied and land that is used primarily for agricultural purposes. A higher rate would apply to residential housing investors and a higher rate again would apply to commercial and industrial property investors.
The new property tax will replace the existing land tax which is levied on properties (other than your principal place of residence) valued above a certain threshold which is currently $734,000.
Under the changes, it is projected that stamp duty will be completely phased out by 2050.
Priority notices were introduced as part of the electronic conveyancing process in 2016.
What are priority notices? Priority notices are forms of land dealings that are registered on title and temporarily act as a caveat would: they put third parties on notice that the priority notice holder intends to lodge a dealing on the title at a later time (such as a transfer, lease or mortgage).
What are the advantages to lodging a priority notice in over a caveat?
- Priority notices are relatively cheap at $48.00 for each title compared to a caveat at $141 for each title;
- There is no need to establish a caveatable interest in the property. Provided you are a party to an intended dealing, you have standing to lodge a priority notice; and
- Priority notices are easily lodged on-line via PEXA.
Any other dealings lodged after the priority notice will remain in a ‘queue’ of unregistered dealings until the dealing linked to the priority notice is registered.
What are the pitfalls? The main disadvantage to priority notices is that they will automatically lapse on the expiration of 60 days from the date of lodgement whereas in NSW caveats are indefinite, subject to any application by the registered proprietor to serve a lapsing notice on the caveator.
The 60 days period may be extended only once by a further period of 30 days. However, the extension does not prevent unregistered dealings lodged during the initial 60 days priority notice validity period, from registering after the expiration of the 60 days.
A priority notice simply preserves the priority of a dealing to be lodged later in time. It doesn’t necessarily prevent the registration of all subsequent dealings. For instance, a caveat is not subject to a priority notice. Further, there can be competing priority notices lodged on title.
While priority notices are cheap and easy to register, consideration must be given to whether the specific dealing will be lodged within the 60 days validity period and if a caveat is more appropriate in the circumstances.
If you would like to learn more about priority notices and conveyancing please get in touch with us today.
The Franchising Code of Conduct is set out in Schedule 1 of the Competition and Consumer (Industry Codes – Franchising) Regulation 2014 (Code).
The Code regulates the conduct of parties (or prospective parties) to a franchise agreement.
Obligation to Act in Good Faith
The Code introduces a positive obligation on each party to the franchise agreement (or prospective party to a franchise agreement) to act in good faith. A failure to discharge one’s obligation to act in good faith attracts a financial penalty. In determining whether a party has acted contrary to this obligation, the Court may have regard to whether the party acted honestly and not arbitrarily and whether the party cooperated to achieve the purposes of the agreement.
Importantly, a franchise agreement must not limit or exclude the obligation to act in good faith and if it does, the clause is of no effect.
The obligation to act in good faith does not prevent a party from acting in his, her or its legitimate commercial interests. For example, if a franchise agreement does not give the franchisee an option to extend the agreement or allow the franchisee to extend the agreement, this does not mean that the franchisor has not acted in good faith in negotiating or giving effect to the agreement.
A franchisor must give a copy of the Code, a disclosure document in the form prescribed in Annexure 1 of the Code and a copy of the franchise agreement to a prospective franchisee at least 14 days before the prospective franchisee enters into the franchise agreement or makes a non-refundable payment to the franchisor in connection with the proposed franchise agreement.
A franchisor must not enter into a franchise agreement, renew or transfer or extend the term of a franchise agreement or receive a non-refundable payment under a franchise agreement unless the franchisee (or prospective franchisee) has received, read and had a reasonable opportunity to understand the disclosure statement and the Code.
This will be evidenced by a signed statement from the prospective franchisee to the franchisor to the effect that the franchisee has received independent legal or business or accounting advice about the franchise agreement or franchise business or has been told about the kind of advice that should be sought but has decided not to seek it.
You’ll find that the team at Conditsis Lawyers is here to assist with your franchising needs.
We will shortly bring you Part 2 of the Franchising Code of Conduct that will discuss the prescribed information that must be included in the Disclosure Statement.
Earlier this year, the NSW Civil and Administrative Tribunal handed down a decision in Yardy v Owners Corporation SP 57237  NSWCATCD 19. The Tribunal decided that the owner of a lot was allowed to keep his small Maltese cross terrier, called Baxter, on the lot owned by him and his wife in the strata scheme and declared that a particular By-law was invalid.
By-law 16 provided that an owner or occupier of a lot must not keep any animal on the lot or the common property (subject to the former legislation).
Section 136(1) of the Strata Schemes Management Act 2015 (Act) provides that By-laws may be made in relation to the management, administration, control, use or enjoyment of the lots or the common property. However, there are certain restrictions imposed on By-laws by virtue of section 139 of the Act including that a By-law cannot be harsh, unconscionable or oppressive.
The Tribunal has jurisdiction to make a declaration that a By-law is invalid pursuant to section 150 of the Act if the Tribunal considers that the By-law is harsh, unconscionable or oppressive.
Mr Yardy brought an application against the Owners Corporation seeking orders that the By-law 16 was invalid because it imposes a blanket prohibition upon per ownership and in such circumstances, it is harsh, unconscionable or oppressive and contrary to section 139(1) of the Act.
It is only necessary to establish that the By-law is one of either harsh, or unconscionable or oppressive. In this instance, the Tribunal concluded that the By-law was all of those things: harsh, unconscionable and oppressive.
By-law 16 was “harsh” because it imposed a complete prohibition, with no exceptions, and secondly provided no means by which special circumstances of a particular lot owner might be considered.
By-law 16 was “unconscionable” because it is contrary to the lot’s owners’ basic habitation rights considered in light of contemporary community standards and secondly it provides no opportunity for consideration to be given to the right and needs of individual lot owners.
By-law 16 was “oppressive” in that it does not involve or permit a balanced consideration of the interests and needs of all lot owners or occupiers and operates only in the interests of the lot owners who are opposed to pet ownership.
It is worth noting that the Owners Corporation had amended a previous By-law concerning pet ownership that relevantly provided an owner or occupier of a lot could keep an animal on the lot or common property provided they sought and obtained the approval of the owners corporation which must not be unreasonably withheld.
The Tribunal ordered that By-law 16 be revoked and the terms of the By-law as previously provided be revived.
Owners corporations need to be wary of imposing blanket prohibitions on the behaviour of its lot owners and occupiers otherwise it may face challenges to the validity of its By-laws.
You’ll find that the team at Conditsis Lawyers is here to assist with your property development needs.
Buying a property at auction is different to buying a property by way of private treaty.
The bidding process is public and once the metaphorical hammer falls at the auction, if you are the highest bidder, you are required to proceed to sign a Contract for Sale. The auctioneer will proceed to effect an exchange of Contracts on that day.
Importantly, there is no cooling-off period when property is sold at auction.
If a property is “passed in” at auction because the highest bid does not meet the vendor’s reserve price, the property is withdrawn from auction and the highest bidder has a right to negotiate with the vendor. If agreement is reached as to the sale price during this negotiation period following the auction on the same day as the property was offered for sale by auction and the parties proceed to exchange Contracts, there is still no cooling-off period available to the purchaser.
On the other hand, if you negotiate a sale by private treaty and submit the highest offer which is accepted by the vendor, if you proceed to sign a Contract for Sale and an exchange is effected, by law you have a 5 business day cooling off period. This right is provided for under section 66S of the Conveyancing Act 1919 (NSW) (Act). You may elect to waive your cooling off rights by arranging for your solicitor or licensed conveyancer to sign a certificate under section 66W of the Act.
Accordingly, it is important that you have your solicitor or conveyancer review the terms of the Contract for Sale before the auction as there will not be any opportunity following the fall of the hammer to negotiate the terms of the Contract. Your solicitor or conveyancer will be able to request amendments to the Contract before the auction to ensure that the terms of the Contract are satisfactory to you.
You’ll find that the team at Conditsis Lawyers is here to demystify the conveyancing process.
Amendments to the Conveyancing Act 1919 were passed by the NSW Parliament on 13 November 2018 that impose further obligations on developers.
The changes affect disclosure, the statutory cooling-off period and rescission of the contract, amongst other things.
It will be an offence to offer residential property for sale (that is yet to be created under a plan of subdivision) unless there is a disclosure statement in the prescribed form and it is made available to prospective purchasers for inspection in the same way the draft contract for sale is made available to prospective purchaser for inspection.
The disclosure statement must include a copy of the draft plan, prepared by a registered surveyor and contain information and documents prescribed by the regulations.
Cooling off period
The cooling-off period for off the plan purchases is extended to 10 business days in lieu of 5 business days.
Purchasers will no longer be required to complete the purchase earlier than 21 days after receiving copies of the registered plan and other documents that were registered with the plan (including but not limited to the by-laws for the scheme, if applicable).
If the vendor becomes aware that the disclosure statement was inaccurate in relation to a “material particular” at the time the contract was signed or has become inaccurate in relation to a “material particular” after the contract was signed, the vendor must serve a notice of changes on the purchaser at least 21 days before completion. The purchaser may elect to rescind the contract, after receiving a notice of changes, if the purchaser would not have entered into the contract had the purchaser been aware of the changes and would be materially prejudiced by the changes.
The vendor can no longer prescribe what is a “material particular” in the contract and the circumstances in which the purchaser can rescind.
The new legislation defines a “material particular” to include a change to the draft plan, provision of draft by-laws, an easement or covenant or changes to the schedule of finishes that will, or is likely to, adversely affect the use or enjoyment of the lot. The purchaser may even rescind after service of the registered plan and other documents (in the absence of the vendor serving the purchaser with a notice of changes) if the disclosure statement includes any inaccuracy in relation to a material particular that is such that the purchaser would not have entered into the contract had the purchaser been aware of the change and would be materially prejudiced by the change.
You’ll find that the team at Conditsis Lawyers is here to demystify the conveyancing process.
New GST legislation will take effect from 1 July 2018 that will affect developers and purchasers of new residential land and their respective legal advisors.
The Treasury Laws Amendment (2018 Measures No. 1) Bill 2018 was passed and assented to on 29 March 2018. Amendments were made to a number of Acts including the Taxation Administration Act 1953 and A New Tax System (Goods and Services Tax) Act 1999.
One of the more critical amendments for property buyers and developers alike is that contracts for the sale of new residential premises* or potential residential land** entered into on or after 1 July 2018 will require the purchaser to remit the GST component directly to the ATO in lieu of the developer, on or prior to settlement.
There is a two (2) year transitional period for contracts entered into prior to 1 July 2018, so that the sale must settle prior to 1 July 2020 in order to avoid the new regime. This may affect many off the plan subdivisions and contracts that have already exchanged.
If the GST component is in addition to the purchase price, then the purchaser must remit 10% of the purchase price to the ATO. If the developer is applying the margin scheme, then the purchaser must remit 7% of the purchase price to the ATO.
The vendor must not make the supply unless it first serves a ‘withholding notice’ on the purchaser 14 days prior to the completion date. This is a strict liability offence.
The withholding notice must include the vendor’s name and ABN, the amount the purchaser will be required to pay the Commissioner, when the purchaser will be required to pay the relevant amount and any other matters prescribed by the regulations. However, the failure of the vendor to comply with its withholding notification obligations does not affect the purchaser’s obligations to remit the GST component to the Commissioner.
This change addresses the problem of developers collecting GST and failing to remit the GST to the ATO, either by taking steps to dissolve the developer company prior to remitting the GST collected or otherwise.
*‘New residential premises’ includes property that has not previously been sold as residential premises, has been created through substantial renovations of a building or have been built or contain a building that has been built to replace demolished premises on the same land and potential residential land.
**‘Potential residential land’ is land that is permissible to use for residential purposes but does not contain any buildings that are residential premises other than land which contains any building that is in use for a commercial purpose. The withholding obligation for potential residential land or commercial residential land only arises if the purchaser is not registered for GST.
Australians have a love affair with real estate.
When you are undertaking one of the biggest financial commitments of your life, you will inevitably have to elect between a lawyer or a conveyancer to act on your conveyance.
But what is the difference between a lawyer and conveyancer?
Conveyancing is the legal work involved in preparing the sales contract, mortgage and other related documents according to NSW Fair Trading. We like to express it in terms of the transfer of legal title to real property from one person to another, including the discharge or registration of a mortgage.
A conveyancer can help you navigate through a complex system of examining the contract for sale, exchanging the contract for sale, arranging payment of stamp duty, checking if there are outstanding arrears or land tax obligations, checking if swimming pool compliance documentation is needed, finding out if any government authority has a vested interest in the land, calculating adjustments for council and water rates, overseeing the change of title with Land Registry Services, completing any final checks prior to settlement and attending settlement.
Conveyancing can also be done by a lawyer.
In both cases, they are about the same price. Usually, both lawyers and conveyancers can offer you a fixed fee to act on the transaction.
But what really is the point of difference a lawyer can offer you that a conveyancer can’t.
While conveyancers and lawyers are equally qualified to do conveyancing, lawyers usually have a more comprehensive and nuanced knowledge of property law.
Furthermore, lawyers can give you legal advice about other matters that aren’t directly related to the conveyance. We can advise whether the conveyance affects your will or estate planning, we can advise on a lease if the property is being sold or purchased subject to an existing tenancy and we can also advise on some tax implications to name just a few things.
Contact the team at Conditsis Lawyers to demystify the conveyancing process.
In ACN 116 746 859 (formerly Palermo Seafoods Pty Ltd) (Palermo) v Lunapas Pty Ltd & Anor (Lunapas) 1, Lunapas leased to Palermo certain retail premises in Tweed Heads from which Palermo operated a seafood shop and restaurant. The tenancy was a tenancy at will. Lunapas gave a notice to Palermo giving it 14 days’ notice of termination in contravention of section 127 of the Conveyancing Act 1919 (NSW). Lunapas wrongfully terminated the lease and re-entered the premises.
Palermo sought damages against Lunapas and the sole director of Lunapas for the alleged wrongful conversion of the stock, plant and equipment which remained on the premises.
After the lockout, Lunapas re-opened the premises as a new seafood restaurant and used the tenant’s plant left in the shop (including the EFTPOS machine, refrigerators and kitchen fittings) for their own use to run the business.
Lunapas argued that Palermo had either abandoned its stock, plant and equipment left in the shop or that it disclaimed the right to immediate possession of its stock, plant and equipment.
The Court did not allow an inference of abandonment to be drawn. The Court accepted in substance that Palermo had never been given the opportunity to collect their goods, plant and equipment from the premises. This is despite a written offer to Palermo to collect its stock, plant and equipment within 24 hours of receiving the said offer and despite Palermo’s refusal to accept delivery of the goods packed up by Lunapas in a hired truck and driven to Palermo’s house the Sunday morning after lock-out. The Court accepted Palermo’s position that Palermo’s company director’s refusal to accept the goods was reasonable: he thought the goods being delivered included perishable stock, he thought the truck was not refrigerated, he had nowhere to store perishable stock that was required to be refrigerated and the terms of the delivery were not agreed in advance.
The Court held that conversion was made out at the time of the lockout and in the period thereafter in respect of all of the goods: the stock, plant and equipment. The Court awarded Palermo $200,000 (plus interest up to judgment) representing the market value of the plant and equipment and the stock was assessed separately at $50,000.
This case serves as a reminder to commercial and retail landlords that there is a procedure that must be followed when terminating a lease including giving a tenant the opportunity to collect their goods, even when there has been a breach of the covenant to pay rent.
You’ll find that the team at Conditsis Lawyers have the experience you need to obtain the best possible outcome for your leasing needs.
1 NSWSC 1583
In contracts for off the plan purchases, clauses are often included that provide for either party to end the contract in the event that the unit being purchased is not complete by a sunset date.
In 2015, the media reported that developers were exploiting these sunset clauses by ending the contract, then re‑selling the property to a new purchaser for a higher price to take advantage of rising property prices.
To address this practice and to provide purchasers with protection against developers exploiting sunset clauses to end a contract, on 2 November 2015 “sunset date provisions” were enacted under the Conveyancing Act 1919 (NSW).
Under these provisions:
- a purchaser is required to consent in writing to the ending of the contract;
- if a purchaser does not agree to end the contract, a developer is required to obtain an order from the Supreme Court permitting it to end the contract under the contract sunset clause; and
- to obtain the court order, the vendor developer must show that the ending of the contract is “just and equitable” in all the circumstances.
In determining whether it is just and equitable for a developer to end the contract, the Court is required to consider:
- the terms of the contract;
- whether the vendor has acted unreasonably or in bad faith;
- the reason for the delay in creating the subject lot;
- the likely date on which the subject lot will be created;
- whether the subject lot has increased in value;
- the effect of the rescission on the purchaser; and
- any other matter that the court considers relevant.
The new provisions were retrospective: in other words they apply to all off the plan contracts whether or not they had been entered into before or after 2 November 2015.
Is this enough for purchasers?
Up until now there have only been two applications by developers to the Court to end off the plan contracts.
In the first case, the developer did not provide sufficient evidence to justify ending the contract. Although the Court accepted that delays caused by contamination, the carrying out of remediation works and delays with the sewer mains had prevented the developer from completing on time, nevertheless evidence that included an increase in construction costs was not sufficient.
In the second case, a question arose as to whether it was possible for purchasers to be awarded compensation if the Court permits the developer to invoke the sunset clause to end the contract.
The ending of a contract pursuant to a sunset clause is called a rescission. This means that once the contract has been ended, the respective parties are put back in the position they were in before the contract was entered into. For purchasers, this means repayment of their deposit. However, purchasers are then in a position of attempting to purchase another property several years after entering into the contract, during which time prices may have risen considerably. This means that they may need to pay more for a comparable property.
In light of these considerations, is the refund of a purchaser’s deposit adequate? Should a purchaser be entitled to compensation as well?
Before the court made a decision, the case settled.
Contact us today for your conveyancing needs.
Conveyancing can be a complex area, and we recommend involving an experienced and qualified lawyer when buying or selling property.
Contact our conveyancing team today.
From 1 September 2017, contracts for sale of residential land will need to be updated to include new documents and meet new disclosure requirements.
Before residential property can be sold, a vendor is required to prepare a contract for sale that:
- discloses information about a property’s title, its zoning, sewerage, any rights of ways or restrictions on use and swimming pool compliance;
- contains certain documents; and
- includes warranties about certain property matters a vendor is obliged to either make or disclose that it cannot make.
Collectively these documents, warranties and information are termed “vendor disclosure”. If contracts for sale do not contain the necessary information or fail to disclose any non-compliance with the statutory warranties, a purchaser has rights to rescind the contract.
On 1 September 2017, the Conveyancing (Sale of Land) Regulation 2010 was repealed and replaced with the Conveyancing (Sale of Land) Regulation 2017. As a result, marketing contracts that were prepared prior to 1 September 2017 that have not been exchanged will need to be updated.
New Asbestos Warning
A contract for sale is now required to contain a warning in respect of loose fill asbestos.
This warning advises purchasers to the effect that a purchaser should:
- give consideration to whether or not a property contains loose fill asbestos insulation; and, if so,
- to conduct a search of a register maintained by the Department of Fair Trading; and
- to make enquiries at the local council as to whether it holds any records showing that the property has loose fill asbestos insulation.
This is particularly relevant for properties constructed prior to 1980. Between 1968 and 1979, a Canberra based company called “Mr Fluffy” provided loose fill asbestos insulation to homes in the ACT and in NSW. It was sprayed into roof cavities as ceiling insulation. It poses a significant health risk.
A taskforce was set up by the NSW Government to carry out free testing of residential property and in 2015, a register was set up to identify residential properties affected by this type of asbestos. In addition, from 20 June 2016, councils have been required to notify prospective purchasers if a property has been listed on the register by placing this information on its planning certificates (attached to contracts).
However, there have been concerns that purchasers may inadvertently purchase properties that had not yet been tested. To address this issue and to bring it to the attention of prospective purchasers, the warning notice is now required to be included in all contracts. Purchasers will be alerted so they can make the necessary enquiries.
Additional sewer service diagram to be attached
A vendor is required to disclose information about a property’s sewerage. It does this by attaching to the contract a diagram from a recognised sewerage authority showing the location of the authority’s sewer. This is commonly called the “sewer diagram”.
The sewer diagram shows the location of the sewer and the means of connection from the property to the sewer. The purpose is to show a purchaser whether part of a structure on the property has been built over or is adjacent to the sewer. This is important as an authority has a statutory easement to gain access for maintenance and is not required to compensate, rebuild or reinstate any structure to the state it was in before. The information is also important to a purchaser as it will affect a purchaser’s plans such as building a swimming pool or an extension to the house.
Following changes in 2009 the sewer diagram became less reliable. The sewer diagram did not contain all relevant information in respect of an authority’s sewer, such as an outline of the house in relation to any pipes.
A vendor will now be required to attach a diagram showing the location of any sewer lines “upstream of the point of connection to the authority’s sewer main” (including point of connection); and the location of the authority’s “sewerage infrastructure for the property downstream of the point of connection.”
This will provide all relevant information to a purchaser and not leave the vendor in a position where it has inadvertently breached its statutory warranty.
All strata by-laws in force are also required to be attached to a contract for selling a strata lot (ie unit or apartment in a strata title);
For further information on new disclosure requirements, contact us.
Housing affordability, rising house prices and high levels of home loan indebtedness are topics that have received much public comment in the media.
In the 2017–18 Budget, the Government announced the “Reducing Pressure on Housing Affordability – first home super saver scheme. There are currently four bills before the Federal Parliament to implement tax measures to implement the scheme and to tighten foreign investor rules to address housing affordability.
First Home Super Saver Scheme
On 1 July 2017 the First Home Super Saver Scheme (FHSSS) was established to assist first home buyers to save for a deposit inside superannuation.
Individuals are able to make voluntary contributions either through personal contributions or through salary sacrificing arrangements into their superannuation and to withdraw those contributions for the purposes of purchasing their first home.
There is a cap on the contributions that individuals can make. This is to ensure that individuals do not contribute more into their superannuation than they would otherwise have done.
From 1 July 2017, home buyers can contribute up to $15,000 per year and $30,000 in total. Contributions and withdrawals will take advantage of the concessional tax treatment available under super.
The scheme will be administered by the ATO. Contributions can be withdrawn from 1 July 2018.
Individuals will need to meet an eligibility criteria and certain conditions. These include entering into a contract to purchase or construct a residential home within 12 months of the first release under the FHSS scheme and to occupy the premises for at least six of the first 12 months.
If individuals are unable to meet the conditions, released amounts can be recontributed back to super.
First Home Super Tax 2017 Bill
Individuals are required to pay a tax if they do not enter into a contract to purchase or construct their first home or recontribute the requirement amount into superannuation.
This is to ensure that individuals do not obtain a benefit from accessing the FHSS Scheme.
Downsizing contributions into superannuation
Individuals over the age of 65 years will be able to contribute the proceeds of the sale of their family home up to $300,000 into their superannuation on or after 1 July 2018.
The measure is aimed at encouraging older people to downsize from large family homes and to relocate to housing that is more suitable for their needs. Older people will be able to invest the proceeds of selling a home into their superannuation which in turn will help to free up housing stock for young growing families.
Ensure Australian homes are available to Australians–changes to foreign investor rules
The Federal Government is also implementing three measures to tighten rules for foreign investor.
These include measures:
- to reduce avoidance of capital gains tax by foreign residents with a 12.5% tax on sales of home of more than $750,000;
- placing a limit on foreign ownership in new developments by introducing a 50% cap; and
- implementing a charge on foreign owned residential property left vacant for more than six months in a year.
These measures are aimed at freeing up more housing stock.
Conveyancing can be a complex area. If you require an experienced and qualified conveyancing solicitor, contact us today.
If so, recent changes to the Foreign Resident Capital Gains Withholding Tax regime will now affect Australian vendors who sell residential property for more than $750,000
As from 1 July 2017, contracts for the sale of residential property in Australia with a sale price of $750,000 or more by foreign resident and Australian resident vendors will now be caught by the Foreign Resident Capital Gains Withholding Regime (the Regime).
Under the regime, Australian resident vendors must now provide a ‘clearance certificate’ to purchasers to prove they are based here to be exempt from the tax.
Furthermore, anyone who purchases an Australian property from a vendor who is a foreign resident must withhold and remit 12.5% of the purchase price to the ATO on the vendor’s behalf.
With many suburbs having a median price of more than $750,000 both vendors and purchasers will need to be aware of these changes. Certainly, in the major cities of Australia, the majority of property transactions will now be caught by the regime.
What is the FRCGW regime?
In May 2013, the government first announced that it would introduce a 10% withholding tax on payments made to foreign residents who dispose of certain types of taxable Australian property with a market value above $2 million. However, it was not until February 2016 that the Regime came into law and took effect from 1 July 2016.
The regime is designed to assist in the collection of foreign residents’ Australian capital gains tax liabilities (who are often foreign investors) and to better monitor possible tax avoidance by foreign residents when buying and selling Australian property. The government hopes that by doing so, home ownership will be more achievable for Australian residents in light of the competition first home buyers face from international property investors.
What are the recent changes?
As from 1 July 2017, the Regime will apply to disposals of Australian real property that are being sold for $750,000 or more, or have a market value of $750,000 or more. The withholding tax rate has also been increased from 10% to 12.5%.
The new threshold and rate will only apply to contracts that are entered into and settle after 1 July 2017. Contracts that were entered into prior to 1 July 2017 but settle after 1 July 2017 are subject to the previous $2 million threshold and 10% withholding tax rate.
But I am not a foreign resident! What the FRCGW means for Australian resident sellers and purchasers
The Federal Government decided that the best way to monitor the collection of foreign residents’ tax liabilities was to require all Australian residents to provide a clearance certificate to purchasers when disposing of Australian property.
This certificate is available from the ATO and only Australian residents can apply for and obtain a clearance certificate.
If Australian vendors fail to provide this certificate, they must also withhold and remit to the ATO 12.5% of the purchase price or face heavy penalties.
It is not only residential property that is caught by this regime. The sale of vacant land, buildings, residential and commercial property, properties held on leasehold and strata title schemes must also include a clearance certificate.
What do vendors and purchasers need to do?
Unless the contract price is more than $750,000, vendors and purchasers are not required to do anything except be aware of the change.
Vendors and purchasers who settle after 1 July 2017 under contracts that were entered into prior to 1 July 2017 and have a purchase price of more than $750,000 are also not required to do anything.
However, vendors who enter into contracts after 1 July 2017 when the market value is $750,000 or more will now need to obtain and provide a clearance certificate to purchasers.
Purchasers will need to consider if the vendor is a foreign resident for the purposes of the regime to determine if they are obliged to withhold 12.5% of the purchase price on settlement and remit it to the ATO to avoid penalties.
In addition, purchasers should also ensure that the contract of sale they are entering into gives them a contractual right to withhold the amount from the vendor at settlement. Even though the withholding obligation is a statutory requirement, without the appropriate clause in a contract, a purchaser may find it is in breach of the contract it has entered into.
When should and how does a vendor obtain a clearance certificate
Vendors can apply to the ATO for a clearance certificate at any time even before a property is listed for sale. The certificates are valid for twelve months.
An online form is required to be completed.
If a vendor is assessed as an Australian resident, a clearance certificate will be issued electronically within days of completion of the online form.
Australian citizens living outside Australia will not necessarily be exempt from the FRCGW
The changes will affect Australian citizens not living in Australia.
Australian residents living outside Australia may not be a resident for Australian tax purposes, particularly if they have been living outside Australia for an extended period of time. They may be foreign investors for the purposes of the FRCGW and may lose the principal place of residence capital gains exemption if they sell their home while living overseas. As a result, they will be required to pay some of their capital gain to the ATO on the sale of their home.
If you have questions about how the Foreign Resident Capital Gains Tax might affect you, please contact our Property Team today!
From 1 July 2017 first home owners have access to a range of benefits as part of a housing affordability package implemented by the NSW Government to increase housing affordability for first home buyers.
Prior to the 2017 State Budget, the NSW Government announced its housing affordability package to help first home buyers get onto the ‘property ladder’. The measures aim to remove or reduce the financial barriers that can prevent first home buyers from affording their own property, such as government stamp duty and lenders mortgage insurance, while assisting them to save for a deposit, which is often several times the average wage.
Over the years there have been numerous financial incentives implemented to assist first home buyers purchase their first home. In its first iteration, the state government scheme offered very generous incentives to first home owners whether they were investing or buying a home to live in. In 2012, the NSW Government revised the incentives to focus on stimulating the building industry by encouraging new home construction; it restricted first home benefits to the purchase of newly built properties that had not been sold before (ie sold to a purchaser by a vendor who bought from a developer but had not finalised the first sale) and vacant land. However, housing affordability has only worsened.
The state government’s current housing affordability package re-introduces financial incentives for first home buyers to purchase both newly-built and existing properties as their primary residence, while retaining its financial measures for all purchasers, new home buyers or otherwise, to purchase a newly-built home. The major change in latest government package is the removal of incentives for investors.
What’s included in the housing affordability package: exemptions and concessions for new and established properties
As from 1 July 2017, first home buyers have access to a range of new incentives and exemptions.
They will now be:
- exempt from paying stamp duty for new and established properties that are sold for up to $650,000;
- entitled to stamp duty relief for new and established properties that are sold from $650,000 to $800,000; and
- no longer be obliged to pay 9% insurance duty on lenders mortgage insurance meaning a saving of $2,900.
With these measures, first home buyers can save $24,740 on the purchase of $650,000 home.
All buyers, first home owner or otherwise, who purchase a new home off the plan they plan to live in will still be entitled to the twelve-month deferral of paying stamp duty. To qualify for this entitlement, purchasers must commence living in the property within twelve months of the issue of a certificate of occupation (not from the date of settlement of the purchase) and do so for a continuous period of six months.
The current exemptions and concessions for vacant land of up to $450,000 are still available.
The First Home Owner Grant
The First Home Owner Grant of $10,000 is
- now limited to the purchase new homes of up to $600,000 in value; and
- available for the building of a new home up to $750,000 in value under a home building contract or by an owner builder.
Share equity scheme
As part of the housing affordability package, the NSW Government will also introduce a share equity scheme where a buyer can purchase a property with an approved equity partner. This is aimed at assisting those who are unable to afford a home on their own.
An approved equity partner includes the NSW Land and Housing Corporation, a registered community housing provider and other approved persons. The guidelines on the operation of this scheme are yet to be developed.
The shared equity scheme will apply on eligible transactions where:
- the equity partner obtains an interest in the home of not more than 80%;
- the equity partner has the right to share in any capital gains on sale or refinancing but has no right of occupation; and
- the home buyer can purchase more equity in the property from the equity partner at a price determined under the arrangement between the home buyer and the equity partner.
The first home buyer will also be entitled to duty exemptions or concessions and the first home owner grant and no duty will be payable on subsequent transfers of equity from the equity partner to the home buyer.
Ending financial incentives for investors
One of the biggest criticisms that has arisen in recent years, is the competition first home buyers face against investors. As such, financial incentives for investors have ended.
The $5000 New Home Grant Scheme and the entitlement to defer paying stamp duty for twelve months on off the plan purchases are no longer available to investors as from 1 July 2017.
Furthermore, foreign investors will now be obliged to pay higher duties and land taxes when purchasing residential real estate. Foreign investors will now be subject to a surcharge on stamp duty of 8% and a surcharge on land tax from 0.75% to 2.%.
If you have a question about the incentives or need advice regarding purchasing or selling property, contact us today.
Purchasing property is an immense financial undertaking and it is essential that the contract for the sale of land meets all of the legal requirements to ensure that the process will proceed as smoothly as possible. Therefore, basic information beginning with the price, the parties to the contract, the property and the promise should all be featured within the contract.
Beginning with the opening page of the contract, generally speaking, the following particulars should be included:
- The selling agent – if there is one;
- The party purchasing the property and the seller;
- The price (obviously);
- The amount to be deposited;
- A full description of the property by the address;
- The nature of any improvements;
- Any particulars that are included within the title;
- Any furnishings or chattels.
In addition, the contract should also include a cooling-off period and a statement must be included within its prescribed form outlining that the cooling-off period lasts for three clear business days in Victoria, or five business days in New South Wales to name two examples. The absence of such a statement may provide the buyer with an opportunity to withdraw from the contract before the sale has been finalised.
Information that should be included within the contract
There are a number of things that buyers should be mindful of in relation to contracts dealing with the sale for residential land, such as a description to any improvements to the property, and anything excluded from the sale should also be clearly outlined within the contract. In addition, the settlement time should also be provided for in the contract, and can be between 30-90 days depending on the jurisdiction.
Once all of the particulars and the necessary disclosure documents have been incorporated, the contract is ready to be dealt with.
What must the vendor disclose?
Vendors under a contract for the sale of land should attach all disclosure documents, conditions, warranties, along with disclosing, and describing any serious defects in the title of the property that the purchaser must accept.
The documents that may be attached include:
- Zoning or planning certificates;
- Plans showing the position of sewer lines in relation to the land;
- A copy of the property certificate and the official plan of the land such as a deposited (subdivision) plan, or if the property is a strata title, a copy of the whole strata plan;
- Any documents creating easements, covenants, and any restrictions shown on the property certificate;
- Notice conforming to the legal requirements in relation to the wording and print size outlining the rights available to the buyer, and also the cooling-off notice;
- A certificate of home warranty insurance should also be attached to the contract by the owner, developer or builder.
Failure to include all the required documents may grant the buyer the right to cancel the contract within the specified time period which may differ according to the jurisdiction.
Warranties: Essential promises
Providing that the contract states otherwise, the seller at the date of the contract warrants:
- That the land does not contain any sewers that is the property of a recognised authority;
- The zoning or planning certificate outlines the true status of the land, which can include planning and zoning information;
- The land is not subject to any adverse affectation (e.g. a proposal by a public authority to acquire part, or all of the land).
Additionally, vendors are also required to include a warning that dwellings must be fitted with smoke alarms.
One of the things to bear in mind is that there is the possibility that a contract can be rescinded for breach of warranty: If the seller fails to disclose the matter; the buyer was unaware of its existence; and the buyer would not have entered into the contract if they were aware of the matter in question.
When you need a property lawyer, you’ll find that the team at Conditsis Lawyers have the experience you need to obtain the best possible outcome for your conveyancing needs.