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).
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:
- Whether to purchase (and borrow) as an individual, company, trustee, or other entity such as an SMSF;
- Tax implications and structuring; and
- 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:
- 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
- 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.
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“).
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.
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.
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.
Article Source: Property Law
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