­

Acquiring Interests in Property Worth More than $750,000? Get a Tax Clearance Certificate

Last year the Government introduced the Foreign Resident Capital Gains Tax Withholding measures.

These measures were framed so that from 1 July 2016, a person acquiring interests in:

  • Land, or
  • Interests in a company or trust that owns land,

valued at $2 million or more from a non-resident needed to pay tax equal to 10% of the value of the land or the interests in the company or trust to the ATO.

In the Budget on 9 May 2017, the Government changed the rules to reduce the threshold at which tax would need to be withheld from $2,000,000 to $750,000. The Government also increased the rate of withholding to 12.5%.

The Government announced that these changes will come into effect on 1 July 2017.

The Government has introduced the Treasury Laws Amendment (Foreign Resident Capital Gains Withholding Payments) Bill 2017 (Bill) to give effect to these changes. The Bill has been referred to a Senate committee that is due to report by 13 June 2017.

The practical effect of the changes is that if someone is acquiring:

  • Land, or
  • Interests in a company or trust that owns land,

valued at $750,000 or more after 30 June 2017, the transferor will need to obtain a tax clearance certificate from the ATO to provide to the transferee at settlement.

Unless there is such a certificate, the purchaser will need to withhold 12.5% of the value of the property or interest in the company or trust and remit it to the ATO.

Given the much smaller threshold amount, the number of transactions affected has expanded enormously. On 20 April 2017, the ABC reported that the median house price in Melbourne in the first quarter of 2017 was $826,000. Therefore, these measures will apply to more than 50% of house sales in Melbourne.

It is important to remember that these rules apply when a person acquires interests in a company or trust that owns real property. As no transfer of land is prepared in these cases, the purchaser’s obligations to pay tax to the ATO unless there is a tax clearance certificate may be overlooked.

These rules also can apply even if no consideration changes hands (for example, if there is a transfer between related parties).

If a purchaser fails to withhold the amount from a payment to the vendor, the purchaser may end up paying the full purchase price to the vendor and then find they also must pay an amount equal to 12.5% of the value of the property to the ATO. The purchaser then would need to try and recover that amount from the vendor (and may have difficulty doing that).

If you require advice on these changes please contact Patrick Cussen.

By |June 9th, 2017|Uncategorised|0 Comments

Tick-Tock, Tick-Tock: The Transfer Balance Cap Countdown is On!

With 1 July 2017 fast approaching, many accountants and advisers are working feverishly to help clients needing to act before then to ensure they do not exceed the $1.6 million transfer balance cap. Requests are being made to the trustee of their self managed superannuation fund (SMSF) to commute some or all their pension phase superannuation income stream(s), and, either roll them over as an accumulation interest within the SMSF, or, withdraw them from the SMSF as a lump sum payment.

In theory, commuting amounts from pension phase is simple (i.e. pension balance(s) less $1.6 million equals the amount to be commuted). However, most SMSFs do not operate on real time reporting so a member will not know the amount of their pension balance(s) until well after 30 June 2017 – thereby making the task of determining the exact amount that needs to be commuted from pension phase under the new relevant tax laws, practically speaking, impossible. Acknowledging this practical difficulty, the ATO has issued a practical compliance guideline (PCG 2017/5 Superannuation reform: commutation requests made before 1 July 2017 to avoid exceeding the $1.6 million transfer balance cap (the Guideline)) setting out the Commissioner’s practical administration approach to the new laws. Where a taxpayer follows the guideline in good faith, the Commissioner will administer the law in accordance with the approach described in the Guideline.

Specifically, the Commissioner will not apply compliance resources to review the commutation of a superannuation income stream a member has in an SMSF that is made before 1 July 2017 where the member request and trustee acceptance to commute:

  • are both made in writing;
  • before 1 July 2017;
  • specifies a methodology to calculate the precise commutation amount. The precise commutation amount must be worked out by the SMSF trustee and reflected in the SMSF's financial accounts for the year ended 30 June 2017, no later than the due date of the SMSF's annual return for the year ended 30 June 2017;
  • specifies the income stream(s) subject to the commutation and, where there are multiple income streams, the order of priority in which the commutations will occur;
  • do not conflict with a similar agreement with a trustee of a different superannuation fund;
    and
  • cannot be subsequently revoked or altered.

Additionally, the Guideline identifies the circumstances where the Guideline will not apply.

Please contact Thalia Dardamanis if you or your clients require assistance in preparing the relevant member request and trustee acceptance documentation before 30 June 2017.

By |June 9th, 2017|Uncategorised|0 Comments

Changes to Victorian Taxes

With all the noise around the recent Federal Budget it is easy to forget changes announced in the Victorian State Budget, many of which are due to apply from 1 July 2017. As some of these changes are not favourable, clients have less than a month to utilise the current position. We summarise some of the main changes below.

  1. The exemption from stamp duty for a transfer of property between spouses will be abolished from 1 July 2017. The principal place of residence will continue to be exempt and so will a transfer due to the breakdown of a relationship. So, anyone wishing to make use of the current exemption needs to act quickly.
     
  2. The off the plan duty concession is being abolished from 1 July 2017. It will still be available to a purchaser who occupies the property as their principal place of residence.
     
  3. A vacant residential property tax of 1% will apply from 1 July 2018 to residential properties in certain councils in inner and middle Melbourne. It will apply to properties that are vacant for more than 6 months in a calendar year. Some exemptions will apply, for example where the owner is temporarily overseas.
     
  4. First home buyers will be exempt from duty for homes purchased after 1 July 2017 where the dutiable value of the home is $600,000 or less. Reduced duty will be payable for homes with a dutiable value between $600,000 and $750,000. The first home owner grant will increase from $10,000 to $20,000 for new homes purchased in regional Victoria after 1 July 2017 with a dutiable value of $750,000 or less. So, first home buyers may wish to wait to sign a contract to buy a new home until after 1 July 2017.
  5. A lower payroll tax rate for employers in regional Victoria with a payroll that comprises at least 85% regional employees. The rate will be reduced from 4.85% to 3.65% from 1 July 2017.
     
  6. Other changes include increasing duty on new vehicles, abolishing duty on certain insurance policies (but not general insurance policies) and revaluing properties every year, rather than every two years, for land tax purposes.

As always with budget announcements, often the devil is in the detail.

By |May 31st, 2017|Uncategorised|0 Comments

Contesting a Will

The Victorian Supreme Court recently handed down its decision in the in the Matter of the Will of Edward James Lynch. Bernie O’Sullivan Lawyers successfully acted for the defendant in this case.

Overview

In 2007 the deceased was admitted to hospital with chest pains. Whilst in hospital he completed several pieces of paper, one comprised a list of names and amounts next to each name and another referred to a last will and nomination of an executor. Despite recovering and going on to live for a further 8 years, the deceased did not make a new will during that period.

Issue

The two pages had not been signed, dated and witnessed in a manner that complies with the formal requirements of the Wills Act 1958 (“the Act”). However, the Act contains a remedial provision which enables the Court to accept a document as a will even though those formal requirements have not been complied with. The plaintiff (being the executor nominated by the deceased) applied to have the two pages described above accepted as constituting the deceased’s last Will and admitted to Probate. If the informal Will was refused by the Court, and there was no other valid will, the defendant and his siblings as the only next of kin were entitled to the estate pursuant to the rules of intestacy. On behalf of the defendant we argued the deceased did not intend the two documents or either of them to constitute his Will or, alternatively, the deceased intended the documents to amount to a conditional Will to only take effect in the event he died without being discharged from hospital.

Decision

The Court emphasised that an informal document can only be admitted to Probate if the deceased intended the document to be his or her last Will. The intention of the deceased is a matter of fact and each case depends on its own facts and circumstances. In this instance, the Court held that the evidence did not support the fact that the deceased intended the informal documents to be his final Will. At best, they were created by him thinking that he might die whilst in hospital in January 2007, which clearly did not happen.

By |March 8th, 2017|Uncategorised|0 Comments