Originally announced as part of the 2017-2018 Federal Budget, the Government has now passed legislation significantly changing the way GST is handled on the sale of new residential property. From 1 July 2018, purchasers of new residential property must pay the GST component of the purchase price to the Australian Taxation Office (‘ATO’) directly instead of to the vendor. The Government has explained these changes are necessary to “clamp down on GST evasion in the property development sector”.

To what transactions does the new withholding scheme apply?

The GST withholding requirements apply to the sale or long-term lease (generally leases or licences for a term of at least 50 years) of the following types of real estate:

• ‘New residential premises’ that have not been created through substantial renovations of a building.  A ‘new residential premises’ is defined under the existing GST law as premises that have not previously been sold as residential premises and have not previously been the subject of a long-term lease, or contain a building that has been built to replace demolished premises on the same land;
• ‘New residential premises’ that are not ‘commercial residential premises’ (i.e. a hotel, motel, inn, hostel, boarding house, premises used to provide accommodation in connection with a school, certain ships, a marina at which one or more of the berths are occupied by ships used as residences, a caravan park, a camping ground or anything similar); and
• Land that it is permissible to use for residential purposes, but that does not contain any buildings (‘potential residential land’), and is included in a property subdivision plan (e.g. strata plan or land subdivision) and does not contain any building that is in use for a commercial purpose.In our view, the above categories will mostly affect those conveyancing transactions commonly referred to as ‘off-the-plan’ purchases.While the transitional provisions exempt any contract made before 1 July 2018 from the GST withholding requirements, they will apply to any part of the purchase price is paid after 1 July 2020. This effectively means that the withholding regime will apply to all conveyancing transactions involving the above property categories if they settle after this date regardless of the contract date.

What does a vendor need to do?

Before selling any residential property (not just new residential property in the above list), a vendor must give a prospective purchaser a written notice stating whether the purchaser will be required to make a GST withholding payment to the ATO and, if so, include the following:

• The vendor’s name and ABN;
• The amount that the purchaser will be required to pay to the ATO;
• When the purchaser will be required to pay that amount;
• If some or all of the purchase price will not be expressed as an amount of money, the GST inclusive market value of that part of the price; and
• any other matters specified in the regulations.

If the vendor fails to give the above notice, then the ATO can fine them up to $21,000.

What does a purchaser need to do?

If the purchaser is not registered for GST, they must deduct the GST component from the purchase price and pay it to the ATO on or before the date that the purchase price (other than the deposit) is paid to the vendor. In the vast majority of cases, this will be the settlement date under the contract. However, where the price is payable by instalments, the obligation to pay the full GST amount to the ATO will arise when the first instalment is due. If the purchaser fails to make the required payment to the ATO on or before settlement, the purchaser is liable for a penalty equal to the GST amount.

It is important to note that the purchaser’s obligation to make the required payment to the ATO is not dependent on the vendor giving the requisite notice as outlined above. However, the purchaser may be absolved from liability if the vendor gave them a notice stating that the premises are not new residential premises or indicating that the purchaser will not be required to pay an amount to the ATO and, at settlement, there was nothing in the contract or any other circumstances relating to the sale that made it unreasonable for the purchaser to believe that the vendor’s statement was correct.

The amount to be paid to the ATO is a percentage of the GST-inclusive purchase price specified in the contract, disregarding any usual adjustments for outgoings, and will depend on whether the vendor will be applying the margin scheme to the supply. If the margin scheme will be applied, then the rate will be 7% of the purchase price (although the Government has the power to increase this as long as it does not exceed 9%). Otherwise, the rate will be 1/11th of the purchase price.

Changes to the NSW Law Society Contract

The contract for the sale of land that is commonly used in New South Wales, which is prepared by the NSW Law Society, has been amended to reflect the new withholding scheme (called a ‘residential withholding’ payment in the contract). The main changes in the 2018 contract include:

• A new yes-no box to indicate whether or not the purchaser must make a GST withholding payment at settlement;
• A new section that sets out the particulars required to be disclosed to a purchaser. Interestingly, in relation to the amount of GST to be withheld, the NSW Law Society is advising that when a property is sold at auction and the amount is not completed, the vendor must provide all these details in a separate notice to the purchaser within 14 days of the contract date; and
• New clauses have been inserted in the standard conditions that allow the purchaser to make the required GST payment. These clauses inter alia require the purchaser to produce evidence that they have submitted the required notification form to the ATO at least five days before settlement.

Implications for purchasers and vendors

Vendors of all residential property will need to ensure they comply with the notice requirements under the new withholding scheme and purchasers must ensure they pay the GST payment when they are buying new residential property. In some cases, simply relying on the vendor’s notice will not be a sufficient excuse for the purchaser not making the required payment. A failure to comply with either requirement could see the purchaser and the vendor facing heavy penalties.

If you require assistance with a property development or conveyancing transaction, please contact HPL Law Group on (02) 9905 9500.

The post Purchasers Forced to Help Stop GST Evasion by Property Developers appeared first on HPL Law Group Sydney.

Since 1970 in New South Wales, the Limitations Act 1969 (NSW) specifies that a person must be in adverse possession of a property for at least 12 years before applying to become the registered owner. A recent decision of the New South Wales Supreme Court (‘Court’) looks at the requirements for a claim of adverse possession where two parties brought competing claims.

Background

Strel v Cordia [2016] NSWSC 1596 concerned a dispute between two persons claiming ownership of a property at Petersham (‘Property’) on the basis of adverse possession. The registered owner, Sylvia Graef, entered into a terms contract of sale with Richard Strel in 1959 (‘Contract’) who moved into the Property in 1960 with his wife and daughter. Mr Strel lived in the Property until his death in 1987.

After Mr Strel’s death, his daughter agreed to let the next-door neighbour Robert Cordia use the Property to store his belongings. Since he was using the Property for storage, he took it upon himself to pay the council rates and water for the Property from around late 1991 until March 2015. He also paid electricity to make the Property look “lived in.” In addition to performing maintenance on the Property, Mr Cordia removed the boundary fence that separated the Property from his property. According to Mr Cordia, Ms Strel raised no objection to these works.

In about October 1998, Ms Strel moved to the Blue Mountains and did not return to the Property for some time. She believed that Mr Cordia was looking after the Property for her and paying the expenses in exchange for him being able to use it for storage. Despite accepting that the Property was not his residence, Mr Cordia admitted to sleeping at the Property on infrequent occasions and using it as a mailing address.

Ms Strel did not take any steps to obtain legal ownership of the Property until 2015, when she lodged a caveat as the sole beneficiary of Mr Strel’s estate (Mr Strel’s wife had predeceased Mr Strel in 1981). She explained this delay because of the circumstances of her father’s death. Mr Strel’s death was caused by a violent assault he suffered in the Property one night and ever since, she found it too upsetting to be in the Property for very long. She stated that she rarely visited the Property and left all of her father’s belongings in the Property in the same state as when he died. Nevertheless, she believed that as the only child, she had inherited the Property.

Ms Strel later commenced proceedings claiming she was entitled to become the registered owner of the Property either on the basis of the Contract or, alternatively, on the basis that her family had possessed the Property since 1960 and thus extinguished Ms Graef’s title. On the other hand, Mr Cordia contended by Cross-Claim that he was entitled to be the registered owner since he exclusively possessed the Property from 1991.

The Contract

The first question for the Court to determine was whether Mr Strel had any right to become the registered owner of the Property pursuant to the Contract. At the time of the proceedings, neither the Contract nor Ms Graef could be located. While a caveat lodged by Mr Strel in November 1959 referred to the Contract and his standing as purchaser of the Property, there was no further documentation adduced to reveal the terms of the Contract.

However, based on evidence from a lawyer in the 1960’s about the usual provisions in terms contracts, the Court was willing to find that the Contract likely provided for Mr Strel to pay Ms Graef a purchase price by instalments over an unknown period of time. Ms Strel’s former husband gave evidence that in about 1970, Mr Strel referred to the Property as “my” property and that he had paid off the Property. The Court accepted this evidence as suggesting that by this time, Mr Strel had completed his payment obligations under the Contract and as such, was entitled to ownership of the Property.

The absence of any action taken by Ms Graef to recover possession of the Property supported this conclusion despite the absence of any action taken by Mr Strel to become the registered owner. The Court viewed Mr Strel’s inaction as more explicable than Mr Graef’s inaction in light of Mr Strel’s continued possession of the Property and the perceived security of Mr Strel’s caveat.

Therefore, upon Mr Strel’s death and the grant of letters of administration to Ms Strel on 15 May 2015, all of his rights in the Property vested in Ms Strel under section 44 of the Probate and Administration Act 1898 (NSW). Since Ms Strel was successful in enforcing the Contract, the Court did not need to consider Adelaide’s alternative claim to the Property pursuant to adverse possession.

Mr Cordia’s claim for possessory title

Having found that Ms Strel was entitled to become the registered owner of the Property, the Court then turned to determine whether her rights were defeated by Mr Cordia’s claim. The Court did not agree with Mr Cordia’s submission that Ms Strel granted him an indefinite lease of the Property from 1991. Instead, the Court characterised the arrangement as a contractual licence to use Property pending Ms Strel sorting out the “situation”. This did not amount to exclusive possession or indicating that Ms Strel would need to seek Mr Cordia’s permission to access the Property.

Several neighbours of the Property gave evidence that in the late 1990s and early 2000s, Mr Cordia told them that Ms Strel was letting him use the Property and referred to the Property as “her place”. The Court found this evidence did not support that Mr Cordia believed Ms Strel had abandoned the Property. The evidence from neighbours also did not support that Mr Cordia padlocked the front gate from 1991. Instead, the Court found it was more likely that the padlock was in place from 2012.

The Court ultimately dismissed Mr Cordia’s claim and ordered that Ms Strel was entitled to possession of the Property against him. The Court explained why Mr Cordia’s claim failed as follows:

“ I accept that Mr Cordia may have known in 2001 that the registered proprietor was Sylvia Graef, not Ms Strel, but I find that he did not then form the view that Ms Strel had abandoned the property and had no right to give him permission to occupy it. He continued to assume that Ms Strel was taking or would take steps to transfer the property into her name. It was not until 2013 that Mr Cordia came to the conclusions that Ms Strel was not in a position to give him permission to occupy the property, and that she had abandoned the property…It is well established that for possession of land to cause time to run under the Limitation Act the possession must be open, not secret; peaceful, not by force; and adverse, not by consent of the true owner…Use or occupation derived from permission or grant cannot be adverse…At least until 2013, any possession of the property by Mr Cordia was with Ms Strel’s consent. It follows that Mr Cordia’s claim that he has been in adverse possession for more than twelve years such that Ms Strel’s title is extinguished…must fail.”

Implications

Cases like these always act as a warning for those who wish to assert rights to a property. Both the plaintiff and the defendant in this instance could have benefited from taking action sooner. For registered owners, it is important to properly document the arrangements of those who you permit to occupy your property and avoid behaviour that may be seen as abandoning the property. And for those who are not the registered owner but nonetheless assert ownership rights to a property, seeking legal advice is paramount.

If you require legal advice about your rights with respect to a property, please contact HPL Lawyers on (02) 9905 9500.

The post “I Was Here First”: Missing Owner Leads to Competing Claims for Ownership of West Sydney House appeared first on HPL Law Group Sydney.

In light of the impending removal of paper certificates of title, New South Wales has recently amended the Real Property Act 1900 (NSW) (‘Act’) to allow purchasers to lodge a ‘Priority Notice’ to protect their interests in land. As part of a national transition to electronic conveyancing, priority notices have also been introduced in Victoria and South Australia, while similar notices have already existed in Queensland and Tasmania for some time.

What is a ‘Priority Notice’?

A Priority Notice is a prescribed electronic form that can only be lodged through the national electronic conveyancing platform, PEXA, from 28 November 2016. A Priority Notice can be lodged under section 74T of the Act by anyone who intends to lodge a dealing to give effect to an entitlement to a legal or equitable interest in land and any associated dealings (e.g. a mortgage or discharge or mortgage). For most Priority Notices, this will be a purchaser under a contract of sale. If the Priority Notice is in the approved form, the Registrar-General may accept the lodger’s entitlement to lodge it on face value.

Under section 74W of the Act, while a Priority Notice is current, similar to a caveat it prevents the registration of any dealing or plan relating to the land other than the following:

• A dealing specified in the Priority Notice;
• A dealing lodged with the lodger’s consent;
• A dealing in registrable form that was lodged before the Priority Notice;
• A caveat or the withdrawal or lapsing of a caveat;
• A vesting or dealing effected in accordance with an order of a court or a provision of a law of New South Wales or the Commonwealth;
• A transmission application by an executor, administrator or trustee in respect of the estate or interest of a deceased registered proprietor;
• A dealing that effects or evidences a replacement of existing trustees or the appointment of new or additional trustees;
• A notice of death;
• In relation to a mortgage, charge or covenant charge recorded or lodged in registrable form before the lodgment of the Priority Notice, a dealing effected by the mortgagee, chargee or covenant chargee in the exercise of a power of sale or other power or a right conferred by the mortgage, charge or covenant charge or by or under law; and
• In relation to a lease recorded or lodged in registrable form before the lodgment of the Priority Notice, a dealing effected by the lessee pursuant to a right conferred by the lease or by or under law.

How long does a Priority Notice last?

Once a Priority is lodged, it will last for 60 days under section 74V of the Act. If required, a lodger can apply to the Registrar-General for an extension of this period by 30 days. Provided such application is made before the expiration of the 60-day period and is in the approved form, the Registrar-General will grant the requested extension.

If the dealings specified in a Priority Notice are lodged or the 60-day period expires (subject to an extension), the Priority Notice will be automatically removed. At any time before the expiration of a Priority Notice, its lodger, a person protected by the Priority Notice or their lawyer/conveyancer can withdraw the Priority Notice under section 74X of the Act. Otherwise, the Registrar-General has the power to remove a Priority Notice if he or she is satisfied that the:

• Priority Notice has expired; or
• Priority Notice does not relate to the land to which it purports to relate; or
• dealing or dealings to which the Priority Notice relates are unlikely to be lodged or registered before it expires; or
• person who lodged the Priority Notice has not provided evidence required by the Registrar-General under section 74T(5) of the Act within the period specified by the Registrar-General.

If you require assistance with buying or selling property or electronic conveyancing, please contact HPL Lawyers on (02) 9905 9500.

The post NSW Says Hello to Priority Notices and Starts to Farewell Paper Certificates of Title appeared first on HPL Law Group Sydney.