Author: netsol

When leasing commercial property, it is important for tenants and landlords to understand the relationship they are entering and the rights and obligations they have.

In Victoria, retail leases are regulated by the Retail Leases Act 2003 (Vic) (the ‘Act’). Generally, the Act applies to premises used solely or predominantly for the supply of goods or services where the lease if for a period of 12 months or more.

The Act was introduced to promote certainty and fairness between tenants and landlords during retail leasing transactions and to provide methods for resolving disputes.

A landlord leasing or offering to lease retail premises has specific disclosure obligations. This article outlines the information a landlord must provide during a leasing transaction and the consequences if the disclosure requirements under the Act are not met.

Disclosure obligations at a glance

A landlord is required to provide the prescribed information relevant to a prospective tenant’s decision about whether to enter or renew a retail lease. The following documents must be available before the landlord or agent offers a new retail lease:

• a draft copy of the proposed lease;
• a lessor’s disclosure statement;
• a prescribed information brochure which provides an overview of retail leasing transactions and the rights and obligations of the parties.

The proposed lease and information brochure must be provided to the tenant once the lease negotiations commence.

What is a disclosure statement?

The purpose of a disclosure statement is to provide a snapshot of the key commercial terms of the proposed lease. It includes details of:

• the premises to be leased, amenities, shared facilities and services such as air conditioning, cleaning, maintenance;
• the term of the lease and renewal options;
• the rent payable including turnover rent;
• rent reviews and the method for calculating rent increases;
• the tenant’s estimated liability for outgoings;
• tenant’s fitout requirements;
• relocation or demolition clauses and information regarding planned future works;
• specific information for shopping centre leases such as trading hours, annual sales for the centre, turnover for speciality shops per square metre, traffic count, and lease termination dates for anchor tenants.

The landlord must include known information that may affect the leased premises such as planned demolition or alteration works to the building or shopping complex, and adjoining or surrounding land and infrastructure.

If a lease is to be assigned, disclosure by the tenant is required of any known matter (not necessarily connected with the lease) which may have a material impact on the ongoing viability of the business, as well as any notices issued to the tenant by the landlord.

The Retail Leases Regulation 2013 (Vic) prescribes four different disclosure forms to be used for non-shopping centre retail premises, shopping centre retail premises, lease renewals and lease assignments with an ongoing business.

When must the disclosure documents be provided?

The landlord’s disclosure statement must be provided to the tenant at least 7 days before a new retail lease is entered.

If a tenant renews a lease pursuant to an option clause, then the landlord must provide the disclosure statement 21 days before the end of the current term.

If a lease (not containing an option clause) is renewed by agreement between the parties then the disclosure statement must be provided within 14 days of entering the agreement for renewal.

Consequences of not conforming with disclosure obligations

Failure by the landlord to provide a disclosure statement entitles the tenant to withhold rent until the disclosure statement is provided.

The tenant must, after 7 days and before 90 days after the lease commences, give the landlord written notice that the disclosure statement has not been provided. The tenant will then have a right to terminate the lease if the disclosure statement is not received within 28 days, or within 7 days after receiving a disclosure statement.

A tenant may also terminate the lease within 28 days of commencement if the information provided in the disclosure statement is false or misleading or materially incomplete, or if a signed copy of the lease is not provided.

A copy of the fully executed lease should be provided within 28 days after being signed by the tenant.

Landlords must itemise all outgoings in the disclosure statement and provide accurate estimates of the tenant’s liability for these items. A landlord cannot require a tenant to pay for an outgoing that has not been included in a disclosure statement.

The Act prohibits or limits the landlord requesting contributions for certain expenses such as owners’ corporation fees and common area expenses. The landlord must follow specific accounting requirements with respect to calculating certain contributions which must be specifically referable to the tenant’s leased premises.

Conclusion

Many lease disputes arise from misunderstandings or unclear communications. The disclosure obligations prescribed by the Act aim to reduce the opportunity for dispute by requiring transparency during the negotiation phase.

Parties to a retail leasing arrangement should be conversant with their rights and obligations and landlords should ensure that leasing and disclosure documents are carefully prepared. Failing to follow the correct processes or providing incomplete or inaccurate documents can have costly results.

If you or someone you know wants more information or needs help or advice, please contact us on 03 9308 0556 or email info@fordlegal.com.au.

The term “buying off the plan” usually refers to purchasing a property that is not yet registered as a single lot with the government department responsible for land title registrations, or not yet built.

Buying off the plan can mean a block of vacant land that is part of a subdivision or a house or unit being built for sale where the land on which it stands is not yet registered as separate titles.

Selling property “off the plan” allows a land owner to develop the land in a less-expensive way as the developer can negotiate lending rates with their Bank at a lower rate if some of the land, houses or units are already sold to buyers.

This is an advantage to the land developer and can also be attractive to a prospective purchaser who buys into an “off the plan” property in the early stages of the development.

There are however risks for the buyer of property “off the plan” and a diligent purchaser should take care when entering into this type of purchase contract.

The contract

A contract for the purchase of property “off the plan” is a contract that does not have a precise completion or settlement date due to the incomplete nature of the building project and the subsequent separate registration process for the titles to the land or new buildings.

“Off the plan” contracts have several clauses that are different to a standard contract for a registered lot. The major difference is the timeframe for the owner to complete the subdivision or the building on the land.

A standard contract will have a precise date for settlement to occur (either an exact date in the future or a completion period say “60 days after the contract is dated”). An “off the plan” purchase contract will still have a timeframe and it is usually stipulated that settlement will occur within a number of days following completion of the building project and registration of separate titles for the property being purchased.

Off the plan contracts also often include a provision called a “sunset clause” which is a timeframe in which the contract must be completed – say within 24 months of the date of the contract. This means that completion or settlement can be anytime in that 24 month period after the signing of contracts, subject to the land becoming registered as a separate title or the building works being finished. If the date is exceeded the parties can terminate the contract.

If you are buying a block of land “off the plan” in a subdivision the contract will usually include a clause allowing a variance of the area of that land that you will own on completion of the purchase. This is because the local council and the land title registering authority have the final say on the area of the lots in the subdivision and they may require the land owner/developer to change the areas. This reduction is usually capped in the contract at “less than 5% of the area” in the contract and does not normally occur, but if it does your land area may be reduced and the purchase price is not reduced if the areas are changed.

When houses or units are sold “off the plan” the dwelling is not fully built or construction may not have started until after you enter into the contract. The usual concerns with this type of purchase are that the progress of the building and the standard of the building work may be different to what you as the buyer contemplated. Remember you cannot see the finished product when you buy “off the plan” as the work will be done after you have signed the contract.

Often the developer will have a demonstration or “display home” to inspect showing you a model of how the buildings should look once completed, or they may have design guidelines and artist’s impressions of the building. These may not resemble exactly the finished building as some changes may be made during construction and you need to ensure that the contract provides some protection here. You should always carefully check the fixtures and fittings such as the stove, range hood, dishwasher, etc. and that the quality of all finishes is in accordance with a schedule that should be attached to the contract.

Market fluctuations

You should keep in mind that like the economy, property market conditions fluctuate and with long-term building projects such as luxury high-rise units, the value of the units may change prior to completion of the building and your contract. The price you agreed to pay stays the same regardless.

Paying a deposit

A deposit could be tied up for some time between signing the contract and settlement.

Paying a deposit by way of a Deposit Bond (not always available in all states) or bank guarantee may be a better choice than a cash deposit when buying “off the plan”. If you terminate the contract your bond or guarantee can be cancelled, and you do not need to take steps to recover your cash deposit.

You should always seek legal advice if a request is made to release the deposit to the owner before the sale is settled. If you do pay a cash deposit you should stipulate in the contract who is holding the money and where it is being held, if possible, it should be deposited in an interest bearing account by the real estate agent.

The developer’s financial position

Construction companies and land developers who become insolvent or go bankrupt during construction can leave a trail of destruction behind them. Rising building and material and labour costs may force a site closure and you may be locked into a contract for a home that is not finished and will not be built to completion.

In some states the builder will be required to have insurance which may provide some compensation for defective work or loss due to a bankrupt builder. You should seek legal advice to see what protection is offered before signing a contract.

While an early buyer “off the plan” has the best choice of the land or homes available in a project and has a longer time to on-sell the property for potential profit the strategy is not without risk. There are many factors to consider before entering into a contract and our property experts can help guide you through this process.

If you or someone you know wants more information or needs help or advice, please contact us on 03 9308 0556 or email info@fordlegal.com.au.

 

Business Structures: Company

When commencing a business venture, it is necessary to consider the most appropriate type of business structure to put in place. Different business structures have different benefits and disadvantages. This article looks at companies – how to set one up and the pros and cons of a company structure.

Key Features

A company is a separate legal entity capable of holding assets in its own name and liable for its own obligations. A company is owned by shareholders. The liability of shareholders is usually limited to the amount of their shareholding guarantee. This means that shareholders can limit their personal liability and are not generally liable for the debts of the company.

Directors manage the day to day business affairs of the company. There are a number of duties and obligations for company directors including an obligation that a director must act in the best interests of the company.

In Australia, the most common forms of company are:

• Private company (or a proprietary limited company): this is a company which does not sell its shares to the public and cannot raise money from the general public through share issue.
• Public company: is a company whose shares are owned by the public at large, with the company’s shares usually listed for trade on a stock exchange.

Companies are regulated by the Australian Securities Investment Commission (ASIC) and governed by the Corporations Law.

How to Set up a Company

An Australian company must be registered with ASIC. When ASIC registers a company, the company will be given an Australian Company Number (ACN). An application must nominate a principal place of business and registered office for the company.

Prior to lodging an application for registration, consideration should be given to:

• the proposed company name. A check should be undertaken to confirm the availability of the proposed name. If no name is specified in the application, the company will be referred to by its ACN.
• what rules will apply to govern the company. This can generally be the replaceable rules from the Corporations Act (which means that the company does not require its own written constitution), a constitution or a combination of the two.
• who will be the shareholders and directors of the company.

A company needs its own Tax File Number, which can be obtained online from the Australian Taxation Office (ATO) and an annual tax return must be filed.

A company must be registered for GST if its annual turnover is $75,000 or more. An Australian Business Number (ABN) is required to register for GST and can be obtained online through the Australian Business Register.

Pros and Cons

The advantages of forming a company include:

• liability for shareholders is limited
• easier to raise finance for expansion
• ownership can be easily transferred
• taxation rates can be favourable

The disadvantages include:

• expensive to form, maintain and wind up
• reporting requirements can be complex
• must publicly disclose key information
• owners cannot offset losses against other income

Conclusion

A company might be a suitable business structure for unrelated parties who want to commence a business venture together, where there is a degree of risk and limited liability is wanted or where there is a desire to list the company on the stock exchange.

Establishment of a company and ongoing administrative and compliance costs associated with the Corporations Law can be high. An accountant or lawyer can help you understand the cost and risks of a company and explain whether a company structure would be suitable for your business going forward.

If you or someone you know wants more information or needs help or advice, please contact us on 03 9308 0556 or email info@fordlegal.com.au.

 

E-conveyancing the way of the future

For the past 150 years when completing a property settlement it has been necessary for lawyers and banks to meet up to check and swap documents and bank cheques.

The party that ended up with the documents then had to lodge them at the Land Registry and notify government authorities about the transaction.

Many of our readers would have been involved in a settlement where they were selling one property and buying another and the settlements had to occur simultaneously or where multiple simultaneous settlements had to be finalised before you were able to get the keys to your new home.

There are a lot of things that can go wrong with a manual process involving the physical signing and handling of documents.

The commencement of a new e-conveyancing system will change this and bring the whole conveyancing process into the 21^st century filling it with much needed speed, efficiency and accuracy.

What is e-conveyancing?

e-Conveyancing provides an electronic online business environment for completing property transactions including electronic lodgement with Land Registries and the electronic settlement of payment of funds.

This process is facilitated via a secure online environment to:

• Lodge the Land Title documents needed to register changes in property ownership and interests;
• Allow the various parties involved in the transaction to view and complete the documents online to conclude the property exchange or transaction; and
• Allow for the electronic settlement of all financial transactions at a nominated date including settlement monies, duties, taxes and any other disbursements.

The Benefits:

• Tangible time and cost efficiencies
• No requirement for physical documentation at settlement;
• No requirement to physically attend settlements
• Use of technology to reduce human error and settlement failure
• Aims to replace legacy paper-based approach.

This is a huge shift in the industry, similar to how share trading in the late 90s went from paper share certificates to online, revolutionising the stock broking industry and share trading generally.

Who provides the secure online environment?

An online property exchange known as PEXA has been established nationally to provide a standardised platform for the completion of online property transaction.

The PEXA platform has been rolled out gradually since December 2013 under an initiative lead by the Government backed National Electronic Conveyancing Development Limited.

The platform – developed by Accenture and hosted by Telstra – uses elements of Victoria’s existing electronic conveyancing system, ECV.

PEXA removes the need to physically attend settlement. Basically, Land Registries, Financial Institutions and lawyers can access the platform and transact together online, performing lodgement right through to settlement from the comfort of their desk.

Through PEXA, the following transactions can be completed (subject to conditions):

• Mortgage
• Discharge Mortgage
• Caveat
• Withdrawal of Caveat
• Transfer Title
• Nomination
• Withdrawal of Nomination
• Consent
• Form 24, Form 25
• Notice of Acquisition
• Notice of Sale

How does it work?

Lawyers open an online workspace where the Land Registry documents and settlement schedule are created and information is shared with all parties to the transaction.

Once preparation is complete and the settlement date and time is reached, PEXA will automatically:

• Lodge documents with the Land Registry;
• Exchange loan funds and pay stamp duty and other third party beneficiaries;
• Remove the need for bank cheques and the wait that goes with them; and
• Remove the need to physically attend settlement.

How does this improve the current system?

It dramatically improves the current situation where lawyers representing the buyer and seller as well as the incoming and outgoing Bank are required to meet up and exchange printed documents and bank cheques before a property is able to settle.

Simple errors like a misspelt or missing names, names that don’t match across documents or wrong cheque details can cause the settlement to fail.

Using PEXA the information is pre-populated in the system and verified against the land registry system, so it reduces error and gives certainty that the purchase will settle.

Full transfer functionality including online lodgement and financial settlement launched to Victorian property lawyers and conveyancers in January 2015.

If you would like to know more about e-conveyancing or would like help with your property matter please contact us on 03 9308 0556 or email info@fordlegal.com.au.

Technology and your estate

Most people are aware that a valid Will determines how their assets are dealt with after they are gone. Your Will can appoint a trusted executor to administer your estate and provide gifts to your chosen beneficiaries. You may also appoint guardians for minor children and give directions for specific funeral and burial arrangements.

As part of an effective estate plan, it is becoming increasingly important to also consider what happens (or should happen) to our technology life after we die.

Millions of online transactions take place every day and most of us have several online accounts such as email, social media, internet banking, Rewards, Flybuys, Frequent flyers, e-Bay and PayPal. Online photos, music, videos, e-books and subscriptions also form part of our digital assets.

These online assets and accounts all need to be dealt with after a person dies however many estate plans fail to include directions for our online life after we die.

This article flags some important technology matters for consideration in your estate planning and some tips to lighten the burden for your executor or legal personal representative when you die.

Learn about your on-line accounts

Being familiar with how various service providers deal with deceased estates will help you determine the type of action you would like taken when you die.

For example, Facebook account holders can advise in advance what they would like to happen to their account when they die. The account can be deleted or memorialised. A memorialised account can provide a place for family and friends to share memories after a person dies on the deceased’s profile, and any content shared by the deceased person remains visible to those with whom it was shared. Nobody can log into a memorialised account.

You may find that some loyalty programs such as Frequent Flyers are not transferrable or redeemable after a person dies. It would seem different policies apply to different schemes. Keeping tabs on accrued benefits in accounts will assist in maximising those that are not transferrable – in some circumstances, it may be beneficial to redeem substantial rewards sooner rather than later.

Appoint a technology custodian and record your instructions

You may wish to appoint your executor or other trusted person with the task of managing your online life after you die. This person should be familiar with the digital world and somebody you can entrust with your online credentials and passwords.

Keep records of your online accounts and subscriptions including user names and passwords and store this information in a secure place.

Record your after-life technology instructions with respect to each account and ensure this will be accessible by your technology guardian after you die.

Do not include passwords for bank accounts – these can be dealt with by your executor advising the respective financial institutions and closed accordingly.

Let your technology custodian know where your online information can be found or include details of where it can be found with your Will. Ensure these details are kept as a separate document, and not recorded in your Will.

Remember your online accounts and login details are likely to change frequently and your list should be updated accordingly.

Online housekeeping

Unsubscribing or deleting accounts now that you no longer use will lighten the load for your technology custodian. Remember to update your technology list after you close an existing account. Closing unmonitored accounts may also assist in minimising the threat of identity fraud.

Streamlining your online accounts will also have the added benefit of reducing emails that you have no intention of reading.

You should also consider regularly downloading photos and videos from your mobile to a storage device so that these may be easily accessed and shared with your loved ones.

Conclusion

Good online management is important both before and after death. A little research and housekeeping now will help your executors and family manage your online life after you are gone.

Being familiar with the policies of your on-line account providers will help you plan what you would like to happen with each account after your death.

If you or someone you know wants more information or needs help or advice, please contact us on 03 9308 0556 or email info@fordlegal.com.au.

Estate Planning – what is an Estate Plan?

An estate plan involves more than signing a Will and storing it in a ‘safe place’. Estate planning requires a holistic approach in consideration of a person’s present circumstances and foreseeable future.

A plan needs to consider who matters, what you have now, what you may have in years to come, and what your final wishes will be. Your lawyer’s role is to document these wishes to ensure they are legally enforceable and can be carried out when you pass.

This article considers what an effective estate plan entails and explores the thought processes involved in preparing an estate plan.

What is effective estate planning?

An ideal estate plan will:

• Appoint a trusted person or persons to manage your affairs (attorney / guardian) if you are incapacitated; and a legal personal representative (executor / trustee) to administer your estate (and associated trusts) after you pass.
• Nominate your intended beneficiaries with certainty or provide for a class of beneficiaries to ensure that your assets pass only to those you intend to benefit.
• Prevent uncertainty, undue stress and expense by reducing the likelihood of a family provision claim.
• Safeguard your asset from unintentional distribution to estranged partners or creditors of insolvent / bankrupt beneficiaries and protect vulnerable beneficiaries such as those with a disability, drug, alcohol or gambling problem.
• Provide flexibility in distributing assets in anticipation of the present and future needs of beneficiaries.
• Maximise the value of your estate through effective tax planning to minimise capital gains, and income tax payable by beneficiaries on their inheritance.
• If relevant, provide for effective business succession or the winding up of a business.

Steps in estate planning

Your family

Every family is different and there is no one-fit solution for all. You should start with an overview of your family circumstances and a list of all family members whether or not you would like them to benefit from your estate.

Acknowledging where there is conflict between family members and identifying any eligible persons who might claim on your estate will assist in devising strategies to reduce the potential for future claims.

Blended families are common and require special attention as there may be competing interests between past and present partners, biological children and step-children.

Choosing your executor and trustee

The executor and trustee will be your personal legal representative and should be chosen with care. For simple estates, a spouse or child / children (or combination) are usually appropriate choices to oversee the administration and finalisation of the estate.

For more complex estates, with business interests or which will have ongoing trusts, it may be preferable to appoint a professional with expertise in this area.

Similarly, if there is conflict within the family a neutral executor may be more appropriate to ensure that the role is carried out with impartiality.

Powers of attorney, guardianship and advance care directives

Each jurisdiction in Australia allows for the appointment of an attorney, guardian or decision-maker to manage your financial, legal and / or personal affairs for a defined or ongoing period and to make health-related decisions if you are incapacitated.

These documents provide for flexibility in choosing the type of functions to be carried out, and the duration for which the authority is given. Powers of attorney can be made enduring so that a person can manage your affairs indefinitely if you lack decision-making capacity.

These documents form an important part of your overall estate plan by ensuring the ongoing management of your affairs by a trusted person if you are incapable.

Your assets

A detailed list of assets and liabilities will assist in determining the overall value of the estate, how and when assets should be distributed, the appropriate structure of the Will and whether a testamentary trust would be beneficial (see below).

You will need a precise description of the assets, their location, whether they are held individually or jointly and their value. Whether certain assets are encumbered will also be a relevant consideration.

If you are including specific gifts, such as items of sentimental value, antiques or artworks, these should be clearly identifiable and described in the Will.

Remember, your assets are likely to change over time and this needs to be factored into your estate plan. A gift of a specific asset of considerable value which is later disposed of will fail and may cause an unintentionally unequal distribution amongst beneficiaries.

Using a testamentary trust

In many cases, it will be advantageous for a Will to establish a testamentary discretionary trust. This is a trust that comes into effect after the will-maker passes. Administration of the trust is carried on by a trustee pre-appointed by the will-maker. The trustee determines how and when estate assets are managed and distributed.

If properly managed, the flexibility of a discretionary trust allows beneficiaries to access favourable taxation treatment with respect to their inheritance and provides protection for at-risk or vulnerable beneficiaries from claims by creditors or ex-partners. With careful planning, the timing of transferring estate assets can postpone or minimise capital gains tax liabilities.

Even modest estates may benefit from having a testamentary trust, particularly where the will-maker is part of a blended family. The trust can allow the will-maker to provide immediate benefits for a current partner (such as a right of residence and income), whilst preserving assets for residual beneficiaries, such as the children.

Trusts can also include separate suites of provisions to apply depending on whether the current partner survives or predeceases the will-maker.

Your superannuation

Superannuation does not automatically form part of your estate assets. Death benefits, comprising the superannuation account balance and any life insurance payments, are paid to a ‘dependant’ determined by the fund trustee, or in accordance with a Binding Death Benefit Nomination (BDBN).

Most funds allow members to nominate their intended beneficiaries through a BDBN. This process forms an important part of estate planning – without a valid BDBN, the beneficiaries are decided by the trustee in accordance with the terms of the trust deed and the relevant legislation. This decision may not reflect what the will-maker intended.

Consideration of the way death benefits are taxed in the hands of the recipients, is also an important issue. Essentially, a spouse or partner will be considered a tax-dependant under taxation law and accordingly, will receive death benefits tax free. Alternatively, whilst adult children are considered dependants under superannuation legislation, they are not ‘tax-dependants’ and will need to pay tax on any death benefits.

Business succession

If you are carrying on a business whether as a sole trader, partnership or through a company, you will need to think about how you would like these interests dealt with after you pass.

If you are a sole trader, you may include terms in the Will for the continuation of the business by your partner, children, friend or trustee.

If you conduct the business as a sole director through a corporate entity, you will need to consider who will take your place as shareholder and managing director. Alternatively, you may wish for the business to be wound up.

Some partnerships will have buy-sell insurance in place. This is a policy allowing a surviving partner to acquire the deceased partner’s share so the business can continue. Generally, the surviving partner or partners receive lump sum funding to purchase the deceased partner’s share from the estate.

Business succession planning requires consideration of the intended beneficiaries and whether they have the desire, skill and competence to continue managing the business.

Conclusion

Effective estate planning takes time and careful contemplation. Your estate plan will usually comprise various documents to ensure the effective management and finalisation of your affairs so that your life’s efforts reward those you intend to benefit.

If you or someone you know wants more information or needs help or advice, please contact us on 03 9308 0556 or email info@fordlegal.com.au.

 

 

 

GST and Residential Property Transactions

The responsibility for remitting Goods and Services Tax (GST) to the Australian Taxation Office (ATO) generally falls on the party making the ‘supply’. In a property transaction, this has traditionally meant the vendor or developer (supplier), unless the contract provides otherwise.

From 1 July 2018 purchasers of ‘new’ residential property must deduct the GST from the purchase price of the property and remit this directly to the ATO on or prior to completion.

These reforms are designed to strengthen compliance with GST obligations and specifically address concerns involving some property developers making taxable supplies and failing to remit the GST collected on those sales to the ATO.

The changes are implemented through the Taxation Administration Act 1953 (Cth) which operates Australia-wide and therefore potentially affects all purchasers, vendors / developers of residential property.

What types of transactions are affected?

The reforms apply to ‘new residential premises’ or ‘potential residential land’. Property that is ‘new residential premises’ means property that:

• has not previously been sold as residential premises; or
• has been created through substantial renovation of a building; or
• has been built to replace demolished premises.

‘Potential residential land’ is land that is permissible to be used for residential premises but does not contain any buildings that are residential premises (i.e. houses or strata units). Inclusion of the term ‘permissible’ means that if the local government zoning allows a mixture of residential and commercial use, then that land is still considered ‘potential residential land’.

For the most part, the reforms essentially apply to all off-the-plan residential property purchases and vacant land in a new subdivision.

The changes commenced on 1 July 2018 and affect all relevant contracts, however contracts entered before 1 July 2018 are excluded if the purchase price is paid before 1 July 2020.

What do purchasers of new residential property need to do?

If you have entered or enter a contract for new residential property which is caught by the provisions you will need to withhold and pay the relevant GST from the contract price to the ATO on or before ‘supply’ (which in most cases will be the settlement date). Generally, the GST amount will be:

• 1/11^th of the contract price; or
• 7% of the contract price if the margin scheme applies.

Vendors / developers will need to provide written notice of their GST obligations and, if GST is payable, this component must be withheld from the contract price and remitted to the ATO. The contract price does not include settlement adjustments such as council and water rates.

Submitting GST withholding payments

Two ATO on-line forms are used to facilitate the remittance process:

• Form 1 – GST property settlement withholding notification
• Form 2 – GST property settlement date confirmation

Each form provides details of the contact person, the property, the GST withholding amount and the parties to the transaction (purchaser and vendor / developer).

Purchasers are responsible for submitting these forms which can be completed by their conveyancer or lawyer who will make the necessary adjustments in the settlement statement and remit the amount to the ATO on behalf of the purchaser at settlement.

Forms are submitted after the contract has been entered into and a supplier gives written notification to the purchaser that a GST amount must be withheld from the contract price. The first form advises the ATO of the transaction and pending GST requirement and generates a unique payment reference number. The second form confirms the settlement date and is submitted at the time of settlement when payment has been made to the ATO.

What do vendors / developers need to do?

Vendors / developers must not sell residential premises or potential residential land without written notification to a purchaser about the requirement to withhold and remit GST from the contract price. If there is no requirement to withhold GST this must be clearly stated on the notice.

If a GST amount is required to be held, the notice must include the supplier’s ABN details, the correct entity for payment of the GST, the settlement date and the amount payable.

The notification may form part of the contract for sale or be provided separately.

The GST is paid direct to the ATO by the purchaser on settlement and applied as a credit towards the supplier’s GST account.

The supplier then reports the GST withheld on its next Business Activity Statement (BAS) and will be entitled to a refund if the amount paid exceeds the actual GST liability for the relevant period.

Consequences for vendors / developers

The regime has significant implications on vendors / developers who should ensure processes are in place to deal with the changes.

• Existing contracts should be reviewed to determine if they will fall within the provisions and therefore require the appropriate notification (for example, contracts that are already on foot but will not settle until after 1 July 2020).
• New and pro-forma contracts should be reviewed and amended in line with the provisions and, where relevant, include positive obligations for purchasers to remit the GST to the ATO, noting that credits will not be able to be claimed unless / until the GST component has been remitted.
• Failure to notify a purchaser in accordance with the regime is a strict liability offence and developers face penalties of up to (currently) $21,000 for individuals and $105,000 for corporations. Consequently, systems should be updated to ensure the inclusion of the appropriate notices for the supply of residential land.
• The provisions effectively prevent developers from interim access to the GST component of a settled contract, which was previously available until the BAS was lodged and assessed for the relevant period. This could impact available working capital and developers may need to review their cashflow requirements to manage the provisions.

Conclusion

The reforms are aimed at improving the integrity of the property development industry and ensuring suppliers comply with their tax obligations. They add additional steps to the conveyancing process for residential property transactions, however can be managed through appropriate processes and systems.

If you or someone you know wants more information or needs help or advice, please contact us on 03 9308 0556 or email info@fordlegal.com.au.

Debt recovery basics for business

If you are owed money for goods or services, the first step in attempting to recover it is generally to send a letter of demand to the other party setting out the amount of money outstanding and giving them a defined period of time within which to settle the matter by paying you the money owed or face legal action.

 Letter of Demand

The letter of demand is sent by you if you are owed the money (the creditor) or your lawyer and warns the person owing the money (the debtor) that if they don’t pay the debt within a certain time period (often seven days) they will be sued in court to recover the debt.

A letter of demand should be the last letter a creditor sends before issuing court proceedings. While letters of demand are not court documents they are often an effective means of forcing the debtor to take action.

It is a good idea to contact us first to ascertain whether it is prudent to proceed with court proceedings and this will usually depend on the size of the debt. Naturally if the sum owed is small it maybe uneconomic to pursue the debt by engaging a lawyer or even pursuing the debt at all. You must however ensure that in enforcing your rights to recover the debt you act within the law.

 Principles of debt collection fairness

When sending a letter of demand, you should be careful not to harass the debtor or send a letter which is designed to look like a court document.

You must not pursue a person for a debt unless you have reasonable grounds for believing the person is liable for the debt.

 Time limits

A creditor has a limited period of time to sue for a debt. In most instances for debts owed this will be 6 years.

If the debtor has made no payments towards the debt or has not acknowledged in writing that they owe the debt for a period of 6 years from when the debt arose then the debt may no longer be recoverable.

 Disputed debts

The debtor has the right to dispute a debt and may do so on the grounds that:

• it is not their debt;
• they have already paid the money;
• they disagree with the amount of the debt; or
• it is an old debt and they haven’t made a payment for at least 6 years, no court judgment has been entered against them and they haven’t admitted in writing that they owe the debt in that time.

If the debt is disputed then you, as the creditor, may have no alternative but to commence legal proceedings or to seek to negotiate a compromise with the debtor.

 When a lawyer becomes involved

If you, as the creditor, are not willing to negotiate or wait for payment, you may wish to contact us to assist with pursuing the debt.

If you know the debt is due and payable and you want to commence legal proceedings it is prudent to have a legal professional assist you and represent you in court to recover the debt. If the size of the debt does not warrant that, then we may still be able to help you to negotiate a payment plan that is manageable to the debtor and acceptable to you.

It is not in the debtors interest to ignore your claim and risk the additional costs of the legal fees and interest on top of the original debt .By following the correct process we can help bring the matter to a conclusion satisfactory to you.

 New customer – credit application process

Before you take on a new customer you should have the correct systems in place to ensure that you are able to assess the customer’s credit position.

Do you have a credit application process for your new customers?

Your credit application and terms of trade should provide you with security over the goods which you have sold to the customer and, if the customer is a corporate entity, ensure that the directors of the company provide you with personal guarantee. You must however ensure that you register any security over goods on the Personal Property Securities Register and we recommend that you speak with a legal professional to assist you with this process to ensure that the registration is not void.

If you do not have a system in place then contact us and we will assist you with putting a system in place to protect you and provide you with security for monies owed to you. It is important that you have the correct system and documentation in place before you do business with a new customer and before you provide the customer with any credit.

 Conclusion

You should contact us to discuss your legal rights and obligations if you are owed money or even if you owe money to someone else who is threatening court action.

If you would like more information or require assistance or advice on how to proceed in debt recovery matters please contact us on 03 9308 0556 or email info@fordlegal.com.au.

There are 4 main types of business structures for doing business in Australia, each with their own advantages and disadvantages. A person can carry on business as a sole trader, partnership, trust and company.

The choice of business structure is an important decision to make at the start of a business venture, as the structure can impact on tax implications and reporting requirements during the lifetime of the business. When setting up a business structure, consideration should be given to factors such as how many people will be involved in the business, what the business will do, how much income is likely to be earned from the business and the intended growth of the business.

Sole Trader

A person can carry on a business on his or her own behalf, as a sole trader. A sole trader can trade under his or her own name or a registered business name. The income earned as a sole trader is taxed at the same rate as individual tax payers.

This is the simplest form of business structure, with lower establishment costs and with minimal legal and compliance requirements. The main disadvantage to this type of business structure is that a sole trader is personally liable for all obligations incurred in the course of the business.

Partnership

Two or more individuals can carry on business in partnership, where the income from the business is received jointly. Partnerships are relatively inexpensive to form and operate. Most partnerships are established by a partnership agreement which sets out the rights and obligations of the partners. A partnership itself is not taxable, rather each partner pays tax on their share of the net income of the partnership.

The downside to this type of business structure is that partners are severally and jointly liable for the obligations of the partnership. There is also potential for dispute and loss of trust between the partners.

Trust

Under a trust, a trustee owns the property or assets of the trust and carries on the business on behalf of the beneficiaries of the trust. A trustee can be an individual or a company. A formal Deed is required to set up a trust and there are annual tasks for a trustee to undertake. As such, it can be expensive and complicated to set up and administer a trust.

The advantages of a trust are that there is flexibility in income distribution and income can be streamed to low income tax beneficiaries to take advantage of their lower marginal tax rate. Furthermore, assets can be protected through a properly drafted Deed. The disadvantages are that trusts can be costly to set up and there are more compliance and legal requirements.

Company

A company is a separate legal entity capable of holding assets in its own name. The words “Pty Ltd” after a business name show that the business is a registered legal entity trading in its own right. A company is owned by shareholders and directors manage the company’s day to day business and affairs. The shareholders of a company receive any company profits in the form of dividends. Shareholders can limit their personal liability and are not generally liable for the company debts. Instead, the financial liability of the company is limited to the company assets.

Companies are governed by the Corporations Law and there are a number of duties and obligations for company directors. Primarily, directors have an obligation to act in the best interests of the company. Establishment of a company and ongoing administrative and compliance costs associated with the Corporations Law can be high. There is also a requirement to publicly disclose key information.

Conclusion

Each business will vary and no business owners’ circumstances will be the same. It is advisable to talk to an accountant or solicitor about the costs and risks of each business structure to make sure that the business structure used is the right one for the business and its needs going forward.

If you or someone you know wants more information or needs help or advice, please contact us on 03 9308 0556 or email info@fordlegal.com.au.
 

Why everyone needs a Power of Attorney

Most people over 18 years of age should consider having a Power of Attorney in place.

A Power of Attorney is a legal document made by a person (known as the principal) that authorises one or more others, on behalf of the principal, to do anything the principal can lawfully do.

The extent of matters that can be authorised under a Power of Attorney is specified in the document and may range from a one-off transaction, such as signing a contract to buy property, to completely managing the principal’s financial and legal affairs. The person appointed to do this is known as an attorney.

This article explains the different types of Powers of Attorney, the limitations that can be placed on the attorney’s functions and emphasises the importance of having such a document in place.

When and why should I make a Power of Attorney?

Generally, a Power of Attorney is prepared when:

• a person anticipates that they will need to sign documents, enter, or complete transactions when they will be unavailable to do so, for example when travelling; or
• a person wants to ensure that they have appointed somebody they trust to look after their financial and legal affairs if they become physically or mentally incapacitated.

None of us knows what the future holds and in either case, a well-drafted Power of Attorney will facilitate the management of your legal and financial affairs when you are unable to.

A Power of Attorney cannot be granted if a person lacks mental capacity. This could be the result of an accident or illness causing impairment such as a head injury, stroke, Alzheimer’s, dementia or other medical complications. Accordingly, it is important to plan your Power of Attorney now while you are in a good state of mind and can put thought into who you will appoint and what functions they may perform on your behalf.

Types of Powers of Attorney

Powers of Attorney can be drafted to suit the needs of the principal and to offer safeguards by placing restrictions on what the attorney can do and when the authority is to commence. For example, a Power of Attorney can be put in place now, but specify it is only effective if or when a certain event happens, such as if the principal travels overseas.

A General non-enduring Power of Attorney will enable the attorney to deal with financial and legal matters but will cease to operate if the principal becomes incapacitated. The power may be limited in terms of what functions the attorney may perform or may be broad encompassing all matters. The attorney may be directed only to carry out very specific functions, such as the selling or buying of a piece of real estate, or to act only for a defined period of time.

An Enduring Power of Attorney enables the attorney to deal with personal matters, financial and legal matters, or both, and continues to operate after the principal becomes incapacitated. Often, a reciprocal appointment is made between spouses enabling one to continue with the daily management of personal and financial affairs if the other is incapacitated. If the principal becomes incapacitated after the appointment is made the Enduring Power of Attorney cannot be revoked.

A Power of Attorney ends when the principal dies after which the provisions of the deceased’s Will (or the legislation governing an intestate estate) will take effect.

Who should be appointed as an attorney?

Apart from some exceptions, a person over 18 years, capable of understanding his or her role as an attorney, may be appointed. An attorney however cannot be a care worker, health or accommodation provider for the principal, or a bankrupt.

An attorney is disqualified from acting in a financial capacity if he / she has been convicted or found guilty of a dishonesty offence unless this is disclosed to the principal and included in the appointing document.

Given the position of trust that the attorney will hold, principals should carefully consider who they appoint as their attorney.

Most appointments are made between spouses or partners with reciprocal trust and who are familiar with their respective legal and financial affairs. If the couple are ageing and in poor health however, it may be preferable to appoint an adult child or children, relative or trusted friend.

The appointment should take account of the level of skill and judgment required to carry out the anticipated role of attorney. Each person’s family and financial circumstances differ and the duties required may range from the simple payment of regular bills, to more complex matters involving large pools of money and / or business transactions.

If appointing more than one attorney, you should consider how well these people are likely to work together in managing your affairs. Attorneys may act jointly and severally, meaning both or either of them may act on your behalf with respect to a function. Alternatively, a direction that requires attorneys to act jointly only, means that each attorney’s consensus for each transaction will be required. Whilst it may be more convenient to appoint attorneys jointly and severally, a joint appointment may offer greater security. Again, it will depend on the principal’s individual circumstances.

If joint attorneys are appointed, the Power of Attorney should stipulate if it is intended that a surviving joint attorney can continue to act if the other joint attorney dies.

What is the role of the Attorney?

An attorney must always act in in good faith, with due diligence and in the the best interests of the principal. When acting for an incapacitated principal, the attorney should wherever possible, encourage the principal to take part in the decision-making process and make decisions that will give effect to the principal’s wishes.

An attorney is generally prohibited from receiving remuneration, a gift or benefit unless expressly stated in the document.

The attorney should maintain separate records and accounts on the principal’s behalf.

Can a Power of Attorney be used in different States and Territories?

Most jurisdictions in Australia recognise and accept a power of attorney made in another jurisdiction provided it was validly given under the relevant legislation. If you anticipate that the Power of Attorney will need to be used intrastate, your lawyer can check the relevant rules.

Remember, if you would like to appoint a person such as your spouse, partner or adult child to deal with certain health and medical matters on your behalf if you are incapacitated, you will need to arrange an Enduring Power of Attorney (Medical Treatment).

Summary

A carefully-drafted Power of Attorney enables you to appoint one or more persons you trust to handle your affairs for a limited period in planned circumstances, or indefinitely should the unforeseen occur.

Once a person loses mental capacity, it is too late to make a Power of Attorney. Even if lack of mental capacity is only intermittent, there will be complications in obtaining sound instructions and a risk that the Power of Attorney may be challenged. All good reasons as to why you should consider putting this important document in place now.

If you or someone you know wants more information or needs help or advice, please contact us on 03 9308 0556 or email info@fordlegal.com.au.