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Monthly Archives: September 2018

Land Tax Trap when moving into a rental property in NSW

In NSW land tax is assessed on a person’s land holdings as of 31 December each year. The principal place of residence (PPOR) is generally exempt from land tax so it is commonly thought that it might save you land tax if you moved in to a rental property just before 31 Dec as opposed to just after as the taxing date is 31 December each year.

 

However, there is a bit of a trap for young players with this as the legislation is designed to try to prevent people moving in for a brief period and claiming the exemption and moving out again.

 

The legislation for this is found under Part 2 of Schedule 1A of the Land Tax Management Act 1956 (NSW).

Clause 2(2)(a) states that for a property to be the principal place of residence of a person it must be occupied since 1 July.

 

But there can still be a hope because the next subclause (b) gives the commissioner some discretion in applying (a). If you can convince the Commissioner that the land is occupied and used as the PPOR you can still have a chance of getting the exemption.

 

The way to get the discretion exercised is not to try to call up Revenue NSW and ask to speak to the Commissioner, but to submit a private ruling application, outlining your case with the evidence and make your case.

 

Example

Bart has several investment properties in NSW but still lives at home with his dad. Bart wants to avoid land tax on the most expensive property and his tenants are moving out in Dec on 28th. Bart plans to move in on the 30th Dec 2018 and out of the property again on the 2nd of Jan just before his new tenants move in.

Bart won’t be able to get the PPOR land tax exemption because he hasn’t lived there since 1 July 2018.

It is unlikely the Commissioner will accept that this is the PPOR of Bart because Bart is only moving in for a few days.

Written by Terry Waugh, CTA & lawyer at Structuring Lawyers, www.structuringlawyers.com.au

Contracts and Death

Generally, when a person dies their Legal Personal Representative will be bound by any contracts that the deceased person had entered.

When entering a contract for the sale of land consider this. If you are purchasing a property and the owner dies do you want the contract to continue? If most cases a buyer would still want the property. But a problem will arise where it can take around 3 to 6 months to get probate through.

Without a grant of probate nobody will have authority to sign a contract – which may not matter if the deceased had already entered it. But nobody will have authority to sign a transfer of land document. This could mean even though you have a valid contract you may not be able to settle on the purchase.

Now consider the other side you are the buyer and you die. Do you want your estate to go through with the purchase? If most cases the answer would be no as there will be difficulties on the side of the purchaser too – if loan documents not signed the estate will need to apply for a loan and this could only be done after probate.

Without being able to complete a purchase would lose their 10% deposit, and possibly more. The seller could sue the estate potentially.

Therefore, seek legal advice on whether to have a clause in your contract allowing either party to terminate the contract if either party dies.

Written by Terry Waugh, lawyer at Structuring Lawyers, www.structuringlawyers.com.au

Financial Abuse of the Elderly

There are many instances of elderly being abused financially. Often the abusers are adult children or other family members of the elderly person. In many cases the perpetrator believes they are doing no wrong, but at other times their abuse is more blatant.

Some forms of elder abuse

  • Improper dealings under a power of attorney

This might include an adult child drawing on a parent’s bank account to help themselves, make loans or gifts to themselves or other family members. Sometimes they may ‘need’ the money temporarily and intend to give it back.

  • Bank account abuse

A family member may open a joint account with an elderly person to help them. The account may only contain the elderly person’s money. The elderly person’s health may deteriorate and the younger person may start thinking along the lines of ‘they couldn’t spend the money anyway’. This may also be a plan to inherit the money outside of the will as if the elderly person where to die the money may become the asset of the other account owner.

Sometimes the elderly will give their ATM and pin to another family member, who may then start taking extra funds out.

  • Stand over tactics

I have heard of one incident of an elderly great grandfather being stood over to chance his will. He immediately redid the will a few days later with a lawyer, but this sort of thing would make the will invalid – if it could be alleged.

  • Manipulated into being guarantors

There is many a budding developer or business owner who has talked one or both parents into letting the them use their property as security for a loan. Often the business fails, and the guarantee is enforced and the parents property sold. Luckily it is getting more difficult to use guarantees on parents main residences like this.

  • Under market value transfers

Buying a property from the elder person at less than market value – or even receiving property as a gift. Often this is done for Centrelink reasons too, but this usually doesn’t work anyway, or won’t increase the amount of pension received to 5 years after the transaction.

  • Sell and build a Granny Flat, on your land

This is where granny is encouraged to sell her main residence and to move into with one of her adult children. Often there is not enough space, so granny is encouraged to build a granny flat or otherwise improve the property of the child.

The trouble with this is often granny isn’t an owner of the property, yet she is improving the property with her money. If granny dies her estate is diminished. Many other legal issues to consider too such as bankruptcy or divorce of the child or disputes – granny may want to move out at some point but have no funds to do so.

  • Settlement of large amount of funds on trust

Sometimes a parent is encouraged to contribute funds to a trust controlled by someone else. The parent then has lost control of those funds.

 

If you want to do any of the above, legitimately, then you need to make sure you can rebut any potential allegations of elder abuse. This can be done by various methods (for some of the above) in consultation with a lawyer. For example, the ability to make gifts to family members could be built into the enduring power of attorney document if the principal agrees.

Written by Terry Waugh, Solicitor at www.structuringlawyers.com.au

Beneficial Ownership of Private Company Shares on ASIC Records

When registering the ownership of shares in private companies with ASIC trusts are not recorded. You might recall that a trust is not a legal entity, but it is a relationship where someone owns property on behalf of others.

 

This means the trustee is the legal owner of the shares.

 

However, on ASIC forms you can nominate whether the registered owner of the shares is holding the shares in their own right, or as trustee. This is done by a tick boxed labelled ‘beneficially held’.

‘Beneficially held’ means the person is not acting as trustee.

If they were acting as trustee then the shares would not be beneficially held (because the beneficial owners are others).

 

So, check your annual ASIC statements and confirm they are correctly listed on ASIC. If they are recorded incorrectly this could lead to expensive disputes upon your death or incapacity.

 

Written by Terryw of Structuring Lawyers – www.structuringlawyers.com.au

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