The new financial year will bring in a number of changes to the property industry. Vendors and developers need to plan for these changes to ensure compliance and avoid any delays or other adverse implications once the amendments take effect.
GST withholding – Announced as an integrity measure in the 2017 budget, the GST withholding regime will apply to contracts for the sale of new residential premises or potential residential land entered into on or after 1 July 2018 (or entered into prior to that date where settlement, or the first instalment due under the contract, doesn’t occur until after 1 July 2020). These measures will require:
All vendors of residential premises and potential residential land (regardless of whether a taxable supply is being made) to give a notice to purchasers stating whether the purchaser is required to withhold and, if so, the amount to be withheld;
Purchasers to withhold 10% of the price (or 7%, where the margin scheme is being used) at settlement (or payment of the first instalment under a terms contract); and
Purchasers to remit the amount withheld to the ATO (on account of the Vendor’s GST liability).
Vendors will still be required to lodge BAS statements in the usual way and be entitled to a credit towards their GST obligations for those payments withheld and paid to the ATO by purchasers.
All sales contracts to which the measures will apply need to be updated to include appropriate provisions to deal with these changes.
Restrictive covenants in transfers – Land Registry will cease to accept transfers of land containing restrictive covenants where those transfers arise from contracts signed on or after 1 July 2018 (or where the transfer is signed on or after that date where there is no contract). Instead, the terms of the restrictive covenant will need to be registered at Land Registry in a memorandum of common provisions (MCP). The MCP will then be referenced in the transfer of land.
For transactions where it is intended to create a restrictive covenant on registration of the transfer, contracts of sale will need to be updated to contemplate the covenant being created by reference to MCPs.
MCPs can be referenced in a transfer of land or the plan of subdivision. If included in the plan of subdivision, they will be subject to review and approval by the planning authority under the provisions of the Subdivision Act.
Developers should take steps to register MCPs as soon as possible, to avoid any pre-settlement delays which may be caused by Land Registry reviewing or requisitioning MCPs.
Restrictive covenants in plans of subdivision – for plans of subdivision certified on or after 1 July 2018, any restrictive covenants created in the plan must be limited to a single page. Developers (and their surveyors) should be updating and amending any plans of subdivision which have not been certified and which do not comply with the new requirements (noting that before amending any plans of subdivision, the effect of the amendment should be considered in light of the rights of any existing purchasers of lots on that plan of subdivision).
To the extent restrictive covenants in plans of subdivision are to be amended, it may be appropriate to consider including those restrictions in MCPs (subject to any Council requirements, and whether or not sales contracts allow this).
Staged subdivisions – From 1 July 2018, Land Registry will require a separate plan to be lodged to remove a staged lot from a staged subdivision (previously, the removal from the staged subdivision could occur in a plan of subdivision which further subdivided that staged lot).
Insolvency amendments – It is common for agreements to allow one party to terminate if the other party is the subject of an insolvency event. These clauses are known as ipso facto clauses. From 1 July 2018, a party’s right to terminate on the basis of an insolvency event (noting other termination rights may still be exercised) is postponed until the administration or receivership ends, or the company is wound up.
If you have any queries in relation to the changes or how they may affect your developments or transactions, please contact: