(03) 9720 2922

Jansen Walsh and Grace

 


Australian Financial Complaints Authority
The Australian Financial Complaints Authority (AFCA) commenced receiving complaints on 1 November 2018.  AFCA replaces the Financial Ombudsman Service (FOS), the Credit and Investments Ombudsman (CIO) and the Superannuation Complaints Tribunal (SCT).

"Is your investment property vacant?"

Properties left unoccupied for more than six months a year, which are located in in the municipalities of Banyule, Bayside, Boroondara, Darebin, Glen Eira, Hobsons Bay, Manningham, Maribyrnong, Melbourne, Monash, Moonee Valley, Moreland, Port Phillip, Stonnington, Whitehorse and Yarra attract vacant residential land tax.


If you own a property in one of these council areas and it will be unoccupied for six months or more in 2018, you can notify the State Revenue Office here.  Notifications are due by 15 January 2019.

When using the portal to notify the State Revenue Office about property that has been vacant in 2018, you should select 2019 as the tax year.


Material facts in Vendor Statements

The Sale of Land Act makes it a criminal offence for a vendor to makes or publish any statement, promise or forecast which they know to be misleading or deceptive, or fraudulently conceals any “material facts,” or recklessly makes any statement or forecast which is misleading or deceptive.  This is sometimes an area of dispute, as we have sometimes encountered vendors of $1 million plus properties who are reluctant to pay for government or municipal authority certificates which must be attached to the Vendor Statement.  Legislation before Parliament will authorise the Director of Consumer Affairs Victoria to make guidelines to assist vendors and their agents to understand what a “material fact” is likely to be for the purposes of this section.  Those guidelines have not yet been published.  However, they may require revealing that a person had been murdered on the property or that it had formerly been used for making illegal drugs.


Off-the-plan purchases
Legislation has been introduced into Parliament while will provide that off-the-plan contracts cannot be terminated by a developer under a sunset clause unless ordered by the Supreme Court of Victoria or with the purchaser's written consent.  This will apply not only to new off-the-plan contracts, but also to existing off-the-plan contracts.

Land transfer duty payable on transfer to beneficiary of family trust
A transfer of real property by the trustee of a family trust or other form of discretionary trust to a discretionary object (often called a beneficiary) of a family trust is exempt from land transfer duty provided no consideration has been paid.  Section 36A(1)(e) of the Duties Act provides: "No duty is chargeable under this Chapter in respect of a transfer of dutiable property that is subject to a discretionary trust (the principal trust) to a beneficiary of the trust if— (e) the Commissioner is satisfied that the transfer is not part of a sale or other arrangement under which there exists any consideration for the transfer."  Obviously, if the beneficiary pays any consideration to the trustee, the exemption does not apply.  However, this also applies where there has been forgiveness of a loan or debt, as occurred in Astakhov v Commissioner of State Revenue [2018] VCAT 1363, decided on 4 September 2018, where Member Tang held the the transfer to a specified beneficiary under the trust was not exempt from land transfer duty.  The beneficiary had to pay $112,200 land transfer duty to the Commissioner.  The lesson is that you must be careful in planning these transactions.


Co-owner refusing to sign Client Authorisation Form
What if your co-owner refuses to sign the Client Authoriation Form?  In Ventura & Anor v Ventura & Ors [2018] VSC 485, Derham AsJ made an order on 29 August 2018 that the co-owner sign the Client Authorisation Form and, if he failed to do so, the Prothonotary sign it.

Rotary Club not a charity
In Rotary Club of Melbourne Inc v Commissioner of State Revenue [2018] VCAT 1257, Member Tang decided on 13 August 2018 that the Rotary Club of Melbourne Inc is not a charity for the purposes of section 45 of the Duties Act, which provides: "No duty is chargeable under this Chapter in respect of a transfer of dutiable property to, or a declaration of trust over dutiable property to be held on trust for— (a) a religious, charitable or educational purpose; or (b) a corporation or body of persons established for a religious, charitable or educational purpose; or (c) a friendly society".

Land transfer duty payable on transfer property from unit trust to members of SMSF superannuation fund
Trustees of SMSF superannuation trusts have to be careful about taking transfers from related unit trusts.  Subsection 36B(1) of the Duties Act provides that: “No duty is chargeable under [Chapter 2] in respect of a transfer of dutiable property that is subject to a unit trust scheme (the principal scheme) to a unitholder in the scheme if— (a) the duty (if any) charged by this Act in respect of the dutiable transaction that resulted in the dutiable property becoming subject to the principal scheme has been paid ...; and (b) the unitholder was a unitholder at the relevant time; and (c) the transfer is in accordance with subsection (2).”  Subsection 36B(2) provides: “The transfer must be— (e) to the unitholder as trustee of a superannuation fund all the beneficiaries of which were beneficiaries at the relevant time.”  Subsection 36B(5) provides: “(5) In this section— relevant time in relation to dutiable property that is subject to the principal scheme, means the time at which the property first became subject to the principal scheme.” Section 36B only applies to a “unit trust scheme”, which is defined in section 3 of the Duties Act in the following terms:- “unit trust scheme means any arrangements made for the purpose, or having the effect, of providing, for persons having funds available for investment, facilities for the participation by them, as beneficiaries under a trust, in any profits, income or distribution of assets arising from the acquisition, holding, management or disposal of any property whatever pursuant to the trust.”  In Lincara Pty Ltd v Commissioner of  State Revenue [2018] VCAT 1060, Between 1985 and 1996, the trustee of Wandin Valley Farms Unit Trust acquired various properties. On 18 April 2016, the trustee transferred the properties to Lincara Pty Ltd (Lincara). At the time of the transfers, Lincara was the sole unitholder of the trust, and held its units in its capacity as trustee of the G & E Sebire Superannuation Fund (Super Fund).  The Commissioner of  State Revenue assessed Lincara to duty of $412,500 in respect of the transfers.  Lincara lodged an objection claiming that the transfers were exempt from duty under section 36B of the Duties Act 2000 (Duties Act), which applies to property passing to unitholders in a unit trust scheme.  Member Tang decided on 9 July 2018 that the transfers were not exempt from land transfer duty, so that Linacre, the trustee of the SMSF superannuation fund, had to pay $412,500 in land transfer duty to the Commissioner.  The problem was that, as  two of the properties were acquired before the SMSF superannuation fund was established, it would have been impossible for the members of the SMSF superannuation fund to have been members at the "relevant time."

Sale of property “subject to contract”
Offers to purchase property “subject to contract” are often ambiguous.  In The Edge Development Group Pty Ltd v Jack Road Investments Pty Ltd [2018] VSC 326, Riordan J held that an offer to purchase real property which stated “The offer is subject to the contract being executed” was not intended to create binding relations until a formal contract of sale of land was executed.

Land tax surcharge
If the Commissioner issues an assessment imposing land tax under the Land Tax Act at the higher rate applicable to trusts, ie, the trust surcharge rate, then the taxpayer has the burden of proving that the surcharge rate does not apply.  This was decided by Member Tang on 13 June 2018 in Vantere Pty Ltd v Commissioner of  State Revenue [2018] VCAT 901.  Member Tang reached his decision based on the decision of Croft J in CDPV Pty Ltd v Commissioner of  State Revenue [2016] VSC 322 at [45] (in the context of the primary production provisions of the Land Tax Act): “The Commissioner is [...] at an evidentiary disadvantage inasmuch as those who are seeking an exemption have within their control almost all of the evidence in relation to what is occurring on the Land and why things were or were not done on the Land. The Commissioner can only really point to objective circumstances with a view to determining the position. Consequently, I accept that, when the Court is faced with a case with very uncertain evidence, a focus must be maintained on whether the onus has been meet.”

Building envelope
The danger of embarking on renovations outside the permitted building envelope without a variation or modification is illustrated by the decision of the Supreme Court in Manderson v Wright (No 2) [2018] VSC 162.  The owner was prohibited from developing her property other than in accordance with an approved neighbourhood design plan pursuant to the planning permit issued for the subdivision.  The owner had carried out $1 million building renovations outside the building envelope.  Dixon J ordered that the building structures outside the building envelope be demolished and ordered her to pay the plaintiff's costs, which were considerable.

Lost trust deed
The decision of McMillan J on 20 July 2018 in Application by South Melbourne Continental Pty Ltd [2018] VSC 398 shows the risk of losing the trust deed.  The trust deed was lost.   Her Honour held that there was insufficient evidence of the contents of the schedule to the trust deed and dismissed the application with costs.

Westpac withdraws from SMSF lending.
Westpac has withdrawn from lending to SMSF trustees under limited recourse borrowing arrangements.

Conflicted advice to SMSF trustees to invest in property
ASIC is investing advice being provided to SMSF trustees which is not in the interests of the members.  During the royal commission into banking, it was revealed that an AMP wealth manager had advised SMSF trustees to invest in properties without informing them that he had a 60% interest in the properties he was encouraging them to buy.

Victorian Racing Tribunal
Legislation has been introduced into Parliament to replace the Racing Victoria, Harness Racing Victoria and the Racing Appeals and Disciplinary Board with a single Victorian Racing Tribunal (VRT).  It also provides for the powers of the VRT to hear and determine a matter, and limits the right of appeal to the Victorian Civil and Administrative Tribunal to an appeal on a penalty imposed by the VRT.

GST withholding tax for some property developers
A new GST withholding regime came in on 1 July 2018.  The GST on almost all contracts for the sale of “new residential premises” or “potential residential land included in a property subdivision plan” will be withheld by the purchaser.  The idea is that the purchaser will remit it to the Commissioner of Taxation.  This will adversely affect the cashflow of property developers who are selling new properties.  In order to protect our property developer clients, our Contract of Sale has two alternative mechanisms to ensure the purchaser actually pays the money the Australian Taxation Office promptly so that the developer can claim a credit.

"I am buying a house.  Can hackers steal my money?"
The breach of security by a hacker successfully hacking the e-mail account of Sargeants Knox Conveyancing on 30 May 2018 and stealing money belonging to Dani Venn and Chris Burgess and transmitting it to another Commonwealth Bank account owned by the hackers was unfortunate.  There were three other frauds, two where the money was recovered and one which was not successful.  However, you must take it in perspective.  The number of successful frauds have been less in the new system with PEXA than under the old paper-based system.  This type of hacking, and a variant of it, has been quite ubiquitous in the United Kingdom for several years.  It has only started in Australia.  We expect it to get as bad as the United Kingdom.  There is also a US-based variant which we have encountered, but which we were successful in preventing.

Effect of the royal commission into banking industry on purchasing your property
Buyers who are borrowing part of the purchase price are now being required by their lenders to pay a deposit of up to 15%, not the usual 10%.  Since 1 May 2018, we have seen the banks' credit departments take much longer to approve loans to buy your home or purchase an investment property, in addition, they are now applying stricter lending criteria.  This is a consequence of the hearings of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.  For this reason, we advise you to consider whether you should make your purchase subject to finance for a period longer than the usual 10 days (often a vendor of a commercial property will not sell subject to finance) and to extend the time for settlement until 60 days.  The usual 30 days for conveyancing might not be time enough for your lender.


New investor loans drop

New loans to purchase investment properties have dropped to the lowest level for 6 years.


Small claims

On 29 May 2018 an amendment to the Australian Consumer Law and Fair Trading Act 2012 received the Royal Assent to increase a “small claim” from $10,00 to $15,000.  It comes into effect on a date to be proclaimed.  This will increase the number of claims which can be heard as small claims in VCAT.


Section 52 Disclosure Statement for sale of business
If  the sale price for a business does not exceed $450,000, the legislation requires that the vendor to give a Disclosure Statement to the purchaser.  The Estate Agents (General, Accounts and Audit) Regulations 2018 came into effect on 20 May 2018.  They increase the threshold for the section 52 statement for a small business from $350,000 to $450,000.  This is similar in many ways to the Vendor Statement when you are selling your property.  The vendor must give it before the purchaser pays the deposit or signs the Contract of Sale of Business.


Selling agent's commission
On 19 April 2018 the Court of Appeal in Advisory Services Pty Ltd v Augustin [2018] VSCA 95, the Court of Appeal dismissed an appeal against a decision by Her Honour Judge Marks that the selling agent was not entitled to commission on the sale.  Her Honour found that the selling agent had had not complied with subsection 49A(1) of the Estate Agents Act 1980, as the Exclusive Sale Authority had not contained a ‘rebate statement’ stating that the agent was not entitled to retain any rebate and must not charge the client an amount for any expenses that was more than their cost, as required under paragraph 49(4)(c) of the Act.  As a result, the Exclusive Sale Authority was unenforceable by the selling agent.  The vendors did not have to pay the selling agent’s commission.


In response to the decision, on 6 June 2018 the Victorian Government announced it would introduce amendments to the Estate Agents Act 1980 to ensure estate agents who have followed their regulatory responsibilities in good faith and have legitimately performed work, are paid for that work.  The amendments to the Act will deal with the rebate statement and will operate retrospectively to cover estate agents who performed services in the past using Exclusive Sale Authorities with incomplete rebate statements.


Transfer of liquor licence

Often it is unclear when the transfer of a liquor licence takes effect.  Amendments to the legislation which received the Royal Assent on 13 June 2018 provide that the transfer of a licence or BYO permit takes effect on the later date of when an application for the transfer of the licence or BYO permit is granted or when the proposed transferee gains the legal right to occupy the licensed premises.  This makes clear the day that a transfer of a licence or BYO permit takes effect, allowing a transferee to begin trading immediately upon the grant of the application for the transfer or on gaining the legal right to occupy the licensed premises.

Effect of the royal commission into banking industry

Since 1 May 2018, we have seen the banks' credit departments take much longer to approve loans, and, in addition, they are now applying stricter lending criteria.  This is a consequence of the hearings of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.  For this reason, we advise you to consider whether you should make your purchase subject to finance for a period longer than the usual 10 days (often a vendor of a commercial property will not sell subject to finance) and to extend the time for settlement until 60 days.  The usual 30 days might not be time enough for your lender.

Transfers of investment or rental properties between spouses or domestic partners
We recommend that, if you have a mortgage, you defer the date of transferring your investment or rental property to your spouse or partner until after 1 July 2018, when the amount of land transfer duty payable will be less.




Federal legislation disallowing deductions for owners of vacant land

Property owners are no longer be able to claim tax deductions for interest, council rates and maintenance costs for vacant land in their income tax returns.  However,

property owners will be able to claim deductions after a property was constructed on the land, the property has received approval to be occupied and was available for rent.  The measures were announced in the budget papers on 8 May 2018 and are aimed at denying tax deductions to property speculators engaged in the practice known as land banking.

The federal government announced on 8 May 2018 that the tax legislation will be amended to deny deductions for expenses associated with holding vacant land.  This is an integrity measure to address concerns that deductions are being improperly claimed for expenses, such as interest costs, related to holding vacant land, where the land is not genuinely held for the purpose of earning assessable income. It will also reduce tax incentives for land banking, which deny the use of land for housing or other development. This measure will take effect from 1 July 2019.

Denied deductions will not be able to be carried forward for use in later income years. Expenses for which deductions will be denied that would ordinarily be a cost base element (such as borrowing expenses and council rates) may be included in the cost base of the asset for capital gains tax (CGT) purposes when sold. However, denied deductions for expenses that would not ordinarily be a cost base element would not be able to be included in the cost base of the asset for CGT purposes.

The amendments will not apply to expenses associated with holding land that are incurred after:
• a property has been constructed on the land, it has received approval to be occupied and is available for rent; or
• the land is being used by the owner to carry on a business, including a business of primary production.
The amendments will apply to land held for residential or commercial purposes. However, the "carrying on a business" test will generally exclude land held for commercial development.

Increase in SMSF membership limit to 6
The Honourable Kelly O'Dwyer, MP, the Minister for Revenue and Financial Service, announced that the Superannuation Industry (Supervision) Act 1993 will be amended with effect from 1 July 2019 to increase maximum number of allowable members in new and existing SMSF funds to 6.  This would be a great boost for small businesses which use an SMSF structure and allow greater flexibility in estate planning and business succession planning.


Family trusts
Currently, where family trusts act as beneficiaries of each other in a ‘round robin’ arrangement, a distribution can be ultimately returned to the original trustee — in a way that avoids any tax being paid on that amount. This measure will better enable the ATO to pursue family trusts that engage in these arrangements by extending the specific anti-avoidance rule, imposing tax on such distributions at a rate equal to the top personal tax rate plus the Medicare levy.

The federal government will extend to family trusts a specific anti-avoidance rule that applies to other closely held trusts that engage in circular trust distributions.

Testamentary trusts
Currently, income received by minors from testamentary trusts is taxed at normal adult rates rather than the higher tax rates that generally apply to minors. However, some taxpayers are able to inappropriately obtain the benefit of this lower tax rate by injecting assets unrelated to the deceased estate into the testamentary trust. This measure will clarify that minors will be taxed at adult marginal tax rates only in respect of income a testamentary trust generates from assets of the deceased estate (or the proceeds of the disposal or investment of these assets).

From 1 July 2019, the concessional tax rates available for minors receiving income from testamentary trusts will be limited to income derived from assets that are transferred from the deceased estate or the proceeds of the disposal or investment of those assets.

Tightening of investor lending

In April 2018 the Australian Prudential Regulation Authority (APRA) has announced it will consider removing  the 10% cap on annual growth for property investment lending.  Any bank that can prove its investor loan book has been growing below the benchmark for as least the past 6 months, and can show it has met APRA's requirements on serviceability, can ask APRA to have the 10% cap removed. However, the cap will be replaced with a series of more permanent measures to keep lending standards strong.  In addition, APRA will not yet lift its 2017 measure to limit new interest-only lending to less than 30% of new home loan approvals.  Furthermore, we are finding that many valuations for investment properties are coming in at 10% to 15% lower than purchase prices or because of the new APRA directive to lenders.  However, one lender based in the Hong Kong Special Administrative Region of the People's Republic of China is offering lending for property investments in Australia, including Melbourne, without the investor having to fund any of the purchase price.

Withholding GST
The purchaser will have to pay one-eleventh (or 7% for margin schemes) of the sale price to the Australian Taxation Office where settlement of a Contract of Sale of land which occurs on or after 1 July 2018, even if the contract was entered into before that date, but subject to the exception for existing contracts entered into before 1 July 2018 where settlement takes place before 1 July 2020.  The vendor is entitled to a GST credit for an amount withheld by the purchaser from the contract consideration but only if and when the purchaser pays the withheld amount to the Commissioner.


Foreign purchasers with Australian spouses or domestic partners
The Duties Act will be amended from 1 July 2018 to introduce an exemption from foreign purchaser additional duty (FPAD) for foreign purchasers who jointly purchase a principal place of residence with an Australian spouse or domestic partner.

Phoenixing
Illegal phoenixing involves the deliberate misuse of the corporate form. It affects all working Australians, including: customers who get scammed by not receiving their paid goods or services; small business and sole-trader creditors through lost payments; employees through lost wages and superannuation entitlements; and ultimately all Australian taxpayers through lost tax revenue. In addition, illegal phoenix operators gain an unfair advantage over their honest competitor businesses, which has a broader economic impact.
In fiscal balance terms, the cost to the budget of

The federal Government announced on 8 May 2018 that it will amend the Corporations Act and tax laws and provide the ASIC and the ATO with additional tools to assist them to deter and disrupt illegal phoenix activity. The package includes reforms to:
  •  introduce new phoenix offences to target those who conduct or facilitate illegal phoenixing;
  •  prevent directors improperly backdating resignations to avoid liability or prosecution;
  •  limit the ability of directors to resign when this would leave the company with no directors;
  •  restrict the ability of related creditors to vote on the appointment, removal or replacement of an external administrator;
  •  extend the Director Penalty Regime to GST, luxury car tax and wine equalisation tax, making directors personally liable for the company’s debts; and
  •  expand the ATO’s power to retain refunds where there are outstanding tax lodgements.




 

 

Land transfer duty payable on transfer to beneficiary of family trust
Land transfer duty payable on transfer to beneficiary of family trust