The Sale of Land Amendment Act 2019 has been passed by the Victorian Parliament

Further to my post about this issue on 16 April 2019 (see: https://melbournepropertylaw.blogspot.com/2019/04/the-sale-of-land-amendment-bill-has.html), the Sale of Land Amendment Bill 2019 was passed by the Victorian Parliament on 28 May 2019 and it received Royal Assent on 4 June 2019.

WG Stark

Hayden Starke Chambers

The Sale of Land Amendment Bill has been reintroduced into the Victorian Parliament

Further to my post about this issue on 30 January 2019 (see: https://melbournepropertylaw.blogspot.com/2019/01/what-amendments-are-proposed-to-sale-of.html), the Sale of Land Amendment Bill 2019 was reintroduced into the Victorian Parliament on 20 March 2019 and had it second reading in the  lower house (the Legislative Assembly) on 21 March 2019.

It is expected to be passed when the state Parliament resumes sittings later in April 2019. 

WG Stark
Hayden Starke Chambers 

What is the effect of the GST withholding regime relating to new residential land in Australia?

1.     The Treasury Laws Amendment (2018 Measures No. 1) Bill 2018 received royal assent on 29 March 2018. The new law significantly changes the way that GST is dealt with and will impact all residential property transactions.

2.     From 1 July 2018 (subject to transitional arrangements) purchasers of newly constructed residential properties or land in new subdivisions will be required to pay the goods and services tax under A New Tax System (Goods and Services Tax) Act 1999 (Cth) (GST) (presently set at 10%) directly to the ATO as part of the settlement.

3.     When announced in the federal budget, it was asserted that the amendments would “strengthen GST law, maintain the integrity of the Australian taxation system and ensure property developers comply with their GST obligations and remit GST on their residential sales”.

Former practice

4.     Formerly, purchasers paid the GST to the vendor as part of the price; the vendor was then supposed to remit it to the ATO with their post-settlement Business Activity Statement (BAS).

5.     GST has always been payable on sales of new residential premises and potential residential land. The change means that instead of asking the developer/seller to make sure the GST is paid to the ATO upon the sale of the property, the buyer is now obliged to do this.

Phoenixing

6.     There has been a lot of publicity about ‘phoenixing’, a practice by some property developers where they claimed and received the benefit of input tax credits for GST incurred on their construction costs, then wound up the purpose-created development corporation, and ultimately failed to remit the GST that they collected on sales to the ATO. Then, they would allegedly start the process over again for their next development, with a new purpose-created development corporation.

7.     According to the Explanatory Memorandum of the Bill that introduced the change, the GST debt in respect of insolvent entities was almost $2 billion as of November 2017.

Withholding notice

8.     The legislation now requires all vendors of residential premises or potential residential land to provide the purchaser with a specific notice before the supply is made. The notice needs to advise the purchaser of whether it needs to withhold GST, and if so, the amount and means of payment.

9.     If the purchaser is required to withhold an amount, the vendor must also provide its name and ABN, the amount to be withheld, and when the purchaser is required to pay the amount.

10.  This notification requirement applies to vendors in respect of sales of all residential premises (not just new premises) or potential residential land with limited exceptions.

11.  There are penalties for both the vendor and purchaser in failing to comply with their obligations under the new regime.

12.  Apart from the withholding notice that is to be provided to the buyer, in most cases the administration of GST in respect of the sale of second-hand residential property has not changed (it is still GST exempt as an input-taxed supply).

Timing

13.  The purchaser’s obligation to withhold and remit will usually arise at settlement. However, where the price is payable in instalments (for example, under a terms contract), the purchaser will be required to remit the GST to the ATO on the day the first instalment (other than the deposit) is paid.

14.  The amount to be withheld varies depending upon whether the margin scheme applies. If the margin scheme does not apply, the purchaser must withhold 1/11^th of the contract price. If the margin scheme applies, the purchaser must withhold 7% of the contract price (regardless of the actual liability). Any reconciliation is to be made in the vendor’s next BAS. The contract price is, effectively, the price set for the supply in the contract. It does not take into account any potential adjustments such as amounts for land tax, council rates and water rates.

15.  The new regime takes effect in respect of:

a.    All contracts entered into after 1 July 2018; and

b.    Contracts entered into prior to 1 July 2018 if they settle after 1 July 2020 (therefore, the new regime will apply to some prior existing off-the-plan contracts).

16.  The purchaser may satisfy its obligations to remit the GST by:

a.    Payment direct to the ATO;

b.    Providing a bank cheque made out to ATO to the vendor at settlement or at the time the first instalment is paid; or

c.     If parties are using PEXA (as is increasingly likely), both parties can authorise PEXA to distribute the amount for GST to the ATO as part of directions for settlement funds.

17.  If the purchaser fails to withhold and pay the required amount to the ATO, the purchaser will be liable to a penalty equal to the amount of the GST payable (unless it has reasonably relied on notification by the vendor). What is reasonable will depend upon all of the circumstances of the case. 

18.  The requirement to notify the purchaser is a strict liability offence and a court may impose a maximum penalty of 100 penalty units for individuals ($21,000) or 500 penalty units ($105,000) for corporations.

19.  The Standard Form LIV Contract of Sale of Real Estate now has a specific Special Condition (SC15B) to take into account these legislative changes.

WG Stark 

Hayden Starke Chambers

When will the Victorian Residential Tenancies Amendment Act 2018 commence?

Further to my post about  the proposed reforms to Victorian Residential Tenancies legislation (see: https://melbournepropertylaw.blogspot.com/2018/02/what-residential-tenancy-reforms-are.html), the Victorian State Government has now passed the Residential Tenancies Amendment Act 2018. 

The reforms number more than 130 allegedly providing increased protections for renters, while ensuring rental housing providers can still effectively manage their properties.

As a result, renters will be able to: 

a.    Have a pet. Consent can only be reasonably refused through a Victorian Civil and Administrative Tribunal (VCAT) order; and

b.    Make certain modifications without first obtaining the residential rental provider's consent, such as installing picture hooks and furniture anchors to stop televisions and other heavy items falling on children.

Other key changes will: 

a.    Require every rental home to meet basic minimum standards, to be set out in regulations, such as providing functioning stoves, heating and toilets.

b.    Require residential rental providers to undertake mandatory safety maintenance for gas, electricity, smoke alarms and pool fences.

c.     Implement the recommendations of the Royal Commission into Family Violence that relate to rental housing. These include:

                                                       i.     Allowing victims to end a lease in family violence situations without first needing a final intervention order, and

                                                     ii.     Ensuring victims are not held unfairly liable for debts created by perpetrators of the violence.

d.    Allow caravan and residential park residents to seek compensation if their park closes.

e.    Clarify rights of entry and photography when a landlord needs to sell a rental property, and

f.      Streamline the rules dealing with goods left behind at the end of a tenancy. 

The changes will come into force progressively.

Apparently, the government is working on complementary reforms to provide easily accessible and informal dispute resolution through VCAT. Also, according to the Government information available further consultation will be undertaken where necessary to develop guidelines around the new laws.

As previously noted in this blog, broadly speaking, the reforms fall into the six categories:

1.     Rental security;

2.     Tenant rights;

3.     Faster payments and rental bonds;

4.     Fair priced rent;

5.     Pets are welcome; and

6.     Modifications.

WG Stark 
Hayden Starke Chambers

What are the recent amendments to the Owners Corporations Act, 2006 relating to short term accommodation arrangements?

1.     Air B’N’B/ Stayz/the short term rental industry in general have attracted considerable media attention in Victoria and Australia over the last several years. 

2.     Attempts to curb the ability of apartment owners/tenants to let their property out by short-stay accommodation arrangements had proved largely unsuccessful in the Victorian Building Appeals Board, Victorian Civil and Administrative Tribunal, the Victorian Supreme Court and the Court of Appeal. For example, see: Owners Corporation PS 501391P v Balcombe [2016] VSC 384, an appeal to Riordan J from VCAT, which concluded that Owners Corporations could not prohibit short term leasing. See also Genco & Anor v Salter & Anor [2013] VSCA 365, an appeal to the Court of Appeal from (originally) the Building Appeals Board, relating to an attempt by the City Of Melbourne to allege that the use of apartments for short stay arrangements was a breach of the Building Code.

3.     However, see Swan v Uecker [2016] VSC 313 in which the landlord was actually successful, arguing the tenant was in breach of the lease by sub-letting to ‘Air B’N’B. 

4.     I wrote a 3 part blog about this issue in August 2016 (see: https://melbournepropertylaw.blogspot.com/2016/08/).

5.     In late 2018, the Victorian Labor Government introduced amendments to the Owners Corporations Act, 2006 in an attempt to give Owners Corporations the power to regulate these types of arrangements. Act No 34 of 2018 received Royal Assent on 14 August 2018. The Act came into effect on 1 February 2019.

6.     Among other things, the Act establishes a complaints procedure relating to short-stay accommodation. 

7.     The new provisions purport to allow complaints to the relevant owners corporation about a breach by a short-stay occupant of the conduct proscriptions applying to short‑stay accommodation arrangements. 

8. The relevant conduct proscriptions include —

a.    Unreasonably creating noise likely to interfere substantially with the peaceful enjoyment of another lot;

b.    Behaving in a manner likely to interfere unreasonably and substantially with the peaceful enjoyment of another lot;

c.     Using a lot or the common property so as to cause a substantial hazard to the health, safety and security of any person or an occupier;

d.    Unreasonably and substantially obstructing the lawful use and enjoyment of the common property by an occupier or a guest of an occupier; and

e.    Substantially damaging or altering a lot or the common property, intentionally or negligently.

Action

9.     If an owners corporation decides to take action in respect of a complaint, it:

a.    Must give notice in writing, specifying the alleged breach and stating that the breach must be rectified; and

b.    May apply to VCAT to resolve a short-stay accommodation dispute in relation to the breach.

10.     Under the new Section 169, VCAT may make any order it considers fair including one or more of the following orders—

a.    A prohibition order under section 169D (preventing the future use of the premises for short term accommodation arrangements);

b.    A loss of amenity compensation order under section 169E;

c.     An order for a civil penalty not exceeding $1100 under section 169G; and

d.    Any applicable order that VCAT may make under section 165.

11.  The owners corporation must report to the annual general meeting in relation to the number of complaints made; the nature of the complaints; the number of matters on which action was taken under this Division; the nature of the matters in respect of which action was taken; and the outcome of each action.

12.  It will be interesting to see how successful the amendments are. 

13.  I believe there are some relatively large scale short stay operators in Melbourne, whose businesses may be affected (severely) by the legislation, and as a result who may attempt to overturn the legislation as unconstitutional. For example, there does not appear to be any compensation available to those operators whose businesses are severely impacted by the amendments to the legislation.

WG Stark

Hayden Starke Chambers