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IMPORTANT INFORMATION – OWNERSHIP AND PAYMENTS

Purchasing Entity/Tenancy If any of the following apply: There is more than one Buyer: Please advise in the Questionnaire whether you intend to purchase the property as joint tenants or tenants in common (and, if so, in what proportions) as we will need to specify this on the transfer documents. The effect of joint tenancy […]

IMPORTANT INFORMATION – OWNERSHIP AND PAYMENTS

IMPORTANT INFORMATION – OWNERSHIP AND PAYMENTS

By Aylward Game - Sep 15, 2021 Property Law

Purchasing Entity/Tenancy

If any of the following apply:

  • There is more than one Buyer:

Please advise in the Questionnaire whether you intend to purchase the property as joint tenants or tenants in common (and, if so, in what proportions) as we will need to specify this on the transfer documents.

The effect of joint tenancy ownership is that on the death of one owner their share in the property passes to the surviving joint tenants despite any provision in a will.

If you purchase as tenants in common then on the death of a co-owner the share in the Property of that co-owner will pass in accordance with their will or in accordance with the laws of intestacy if they do not have a valid will.

Joint tenants can, at any time, give a notice to their co-owners that severs their interest from the joint tenancy.  A joint tenant who gives such notice will then hold their share as a tenant in common with any other co-owners remaining as joint tenants between them (if more than one).

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A joint tenancy is not appropriate where parties wish to hold interests in the Property in unequal shares.  If you wish to hold the Property other than equally (for example, a 99% and 1% split or some other unequal percentage ownership) for taxation or asset protection reasons then you must hold the property as tenants in common.  You will need to advise us of the percentage of ownership each owner is to have as this needs to be set out on the Property transfer.  Any later change to ownership proportions will result in transfer duty being imposed.

  • You are purchasing the property for investment purposes and the Contract has not yet been entered into:

We recommend you seek advice from an accountant or financial advisor on the best purchasing and borrowing entity for you taking into account your financial circumstances and financial planning requirements (for example:

  1. Whether to purchase (and borrow) as an individual, company, trustee, or other entity such as an SMSF;
  2. Tax implications and structuring; and
  3. Land tax and other holding costs.

If you enter into the contract as trustee of a trust, you are still personally liable under the Contract for the performance of all the Buyer’s obligations unless provision is included in the Contract to limit that liability.  If you have any concerns about this issue, please contact us.

  • Foreign ownership (if applicable)

If you are a foreign person or are a trustee of a foreign trust, you may need to:

  1. Obtain a notification from the Foreign Investment Review Board under the Foreign Acquisition and Takeovers Act 1975 (Cth) that it has no objection to your acquisition of the Property; and
  2. Notify the Department of Natural Resources and Mines under the Foreign Ownership of Land Register Act 1988 (Qld).

Please call us if you think this applies to you.

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Failure to obtain a required no objection notification may result in a forced sale and substantial penalties being imposed.

  • Withholding payments (if applicable)

Under laws designed to ensure that foreign residents meet their liability for CGT when selling land in Australia, a Buyer may be required to pay 10% of the purchase price to the Australian Taxation Office (“ATO“).

OWNERSHIP AND PAYMENTS

The withholding laws apply to contracts entered into on or after 1 July 2016 where the Property sold has a market value of $2 million or more.  If the withholding laws apply, the Buyer must pay the required amount to the ATO promptly after settlement unless the Seller produces a valid clearance certificate issued by the ATO or a notice from the ATO varying the withholding amount to nil.

The issuing of a clearance certificate by the ATO to the Seller is confirmation that the Buyer is not required to pay any part of the purchase price to the ATO at settlement.

It is important to note that, payment of any required withholding amount is the Buyer’s responsibility.  A failure to pay the withholding amount to the ATO may have serious consequences.  In addition to liability for the withholding amount, a penalty (equal to the amount required to be withheld) may apply where a Buyer fails to comply with the withholding laws.

In most cases, market value will be determined by the purchase price payable under the Contract. If the transaction involves a purchase price of $2 million or more but includes personal property (such as moveable equipment or furniture) with a material value and the market value of the land and improvements may be less than $2 million, it may be appropriate to obtain an independent valuation of the Property for the purpose of specifying an apportionment of the purchase price.

Similarly, an independent valuation of the Property should be considered if the transaction is between related parties and the Property may have a market value of $2 million or more.

If the market value of the property is $2 million or more but the purchase price is less than the amount to be paid to the ATO, you should consider options for the payment of this amount or amendment of the Contract to require payment by the Seller of an amount to cover this payment.

  • Land Tax

Land tax is potentially payable if the unimproved value of all land owned by you as at midnight on 30 June in each year meets the statutory threshold amount.  Generally, there are exemptions for your private residence.  If the Seller has any outstanding land tax liability in respect of the Property then this will need to be taken into account in determining the settlement figures.  There may need to be settlement retention for unpaid land tax although in off the plan contracts, this right is not often given, and instead, you must rely on the Seller’s undertaking to pay land tax for the current land tax year.

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After settlement, you will be responsible for dealing with any rates and land tax assessments, checking their accuracy (including whether the correct category has been applied for any assessments and your entitlement to any deduction or concession), and attending to payment.

  • Transfer Duty

Transfer duty is a state tax that is payable on dutiable transactions in Queensland. It is calculated on the Property’s dutiable value which is generally the higher of the consideration payable under the Contract and the Property’s unencumbered market value.

Payments

As transfer duty is applicable to each transaction, you must ensure that the Buyer named in the Contract is the person or entity that you intend to own the property. Otherwise, you risk two or more assessments of transfer duty, which can increase the amount payable.

If you are seeking to purchase property for your SMSF and are planning to buy the Property using a bare trustee as a purchaser with a loan then you risk paying transfer duty again when the Property is transferred to your SMSF on repayment of the loan. It is outside our normal retainer to advise you on a strategy to avoid that additional duty.

You also need to carefully consider your current and ongoing eligibility for any concession or exemption that you obtain.

If you do not pay the duty or advise the Office of State Revenue of changes to your eligibility for concessions or exemptions then they may identify this (as they actively cross-check data held by other government agencies) and can seek to recover any shortfall directly from you including penalties and interest.  Recovery of incorrect or unpaid duty may occur years after settlement and could compound into substantial amounts.

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From 1 October 2016, transactions under which foreign persons acquire land for residential use or development will attract additional duty.  See item 9.7 for further details.

  • Home Concessions to Transfer Duty

You may be eligible for a home concession on the transfer duty if you meet the following occupancy requirements:

  • The Property is being purchased as your first home and will be occupied as your principal place of residence within 12 months after settlement (“first home concession”); or
  • The Property is vacant land and is being purchased  to construct your first principal place of residence that you will occupy within 24 months after settlement (“first home vacant land concession”); or
  • The Property is being purchased:
    1. To be occupied as your principal place of residence within 12 months after settlement; and
    2. The agreement to purchase the home was entered into either before 1 August 2011 or after 30 June 2012 (“home concession”)
    3. You satisfy all the Office of State Revenue’s strict eligibility requirements; and
    4. you do not dispose of the Property within 12 months of occupying the residence.

First Home Concession 

If you are eligible, no transfer duty is payable for purchases where the consideration or value is under $500,000.  The concession progressively reduces as the consideration or value of the Property increases up to $550,000.

There is no first home concession where the consideration or value is equal to or greater than $550,000 but you may still be eligible for a home concession.

First Home Vacant Land Concession

If you are eligible, no transfer duty is payable for purchases of first home vacant land up to $250,000 in value.  The concession progressively reduces as the value increases up to $400,000.  There is no concession where the value of the vacant land is $400,000 or greater and transfer duty is then payable at ordinary rates.

Home Concession 

If you are eligible, concessional duty rates apply to the first $350,000 of the consideration or value of the home and any part of the price over $980,000.

Duty at general rates applies to the value between $350,000 and $980,000.

Eligibility requirements

Strict eligibility requirements apply to each of these home concessions.  Check your eligibility by using the Queensland Government’s online eligibility test (available on its website at www.qld.gov.au) or by telephoning the Office of State Revenue directly on 1300 300 734.

Usually, you will not meet the eligibility requirements for a home concession on duty if:

  • You are purchasing an investment property;
  • You are purchasing using a company, unit trust, or discretionary trust;
  • You are applying for a first home concession and:

    1. Have held an interest in residential land somewhere in the world; or
    2. Have claimed the concession before;
  • You are applying for a first home vacant land concession and:
    1. Have held an interest in residential land somewhere in the world; or
    2. There will be more than one home constructed on the vacant land; or
    3. There was a building, or part of a building, on the land when you bought it.

You should tell us as soon as possible if:

  1. A concession applicant is under 18 years old; or
  2. A trustee or guardian is purchasing for the benefit of legally disabled beneficiaries.

Disposal of property

You will lose your entitlement to the full concession if you sell, transfer, lease, extend a lease, rent, surrender a lease to another person or otherwise grant possession of the Property to another person within 12 months of occupying the house.  Repayment of all or part of the concession may be required and penalties and interest can apply.

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If any of these things apply, you must notify the Office of State Revenue within 28 days of the event happening for liability reassessment.  If you do not, significant additional penalty duty may be payable and interest will be charged from when you are liable to notify.  If applicable, this is your responsibility and is outside the scope of our retainer.

However, please note the Office of State Revenue generally does not consider the following to be a disposal of the Property:

  1. The Sellers remain in the Property after settlement and move out within 6 months of settlement;
  2. Existing tenants remain in the Property no longer than 6 months after settlement and their current lease expiry date;
  3. An intervening event such as a natural disaster, incapacity, or death prevents you from occupying the home;
  4. You enter a retirement village lease;
  5. You occupy the home as your principal place of residence, then leave it vacant for the rest of the 1 year occupancy period; or
  6. You transfer part of the property to your spouse.

It is important to consider the potential effect that any dealing with the Property may have on your entitlement to a concession for transfer duty.  You should contact us to discuss any queries you have in relation to this issue.

  • Additional Foreign Acquirer Duty (AFAD)

AFAD applies to property transactions that are liable to transfer duty if:

  1. The duty liability arises on or after 1 October 2016;
  2. The Property is AFAD residential Property (see below); and
  3. The acquirer under the transaction is a foreign acquirer.

AFAD residential property is a property in Queensland that is or will be used solely or primarily for residential purposes, where particular conditions are met. These include:

  1. Established homes and apartments;
  2. Vacant land on which a home or apartment will be built;
  3. Land for development for residential use; and
  4. Refurbishment, renovation, or extension of a building for residential use.

AFAD residential property does not include property used for hotel and motel purposes.

A person will be a “foreign acquirer” if the person is:

  1. A foreign individual – an individual other than an Australian citizen or permanent resident.
    However, AFAD will not apply to a New Zealand citizen who holds a permanent visa, or who holds a special category visa as defined in the
    Migration Act 1958 (Cth);
  2. A foreign corporation – a corporation incorporated outside Australia or a corporation in which foreign persons have a controlling interest; or
  3. A trustee of a foreign trust – a trust where at least 50% of the trust interests are foreign interests.

AFAD is an additional duty imposed at the rate of 3% of the transaction’s dutiable value.

However, if there are multiple buyers and only one is a foreign acquirer, AFAD will only apply to the extent of the foreign acquirer’s interest under the transaction.  Liability for AFAD will not affect any entitlement to a home concession for transfer duty.

If within three years of the transaction, the acquirer becomes a foreign corporation or the trustee of a foreign trust, it is important to note that the Commissioner of State Revenue must make a reassessment to impose AFAD on the transaction. This may occur, for example, because of a change in the controlling interest in the company or interests in the trust.

If this becomes applicable, you must take action to inform the Commissioner of the changed circumstances within 28 days.  If you do not, significant additional penalty duty may be payable and interest will be charged from when you are liable to notify the Commissioner.  If applicable, this is your responsibility and is outside the scope of our retainer.

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You should call us as soon as possible to discuss this issue if you think AFAD may apply to your transaction.

Everything You Need To know About The Property Law Act

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