Whether you’re a first-time buyer or are selling your property, chances are you have questions about some of the terms brought up in the course of your purchase or sale of a property. We understand that this process can be difficult and may even be stressful when you are unsure of all the new words thrown at you.
Here at Melbourne Lawyers and Mediators, we want to help you understand as much of the conveyancing process as possible and minimize your stress and concerns. To help achieve this, we explain some of the terms we have found to be most confusing for our clients.
- GST Withholding
This requirement that came into effect on 1 July 2018 requires buyers of either residential premises and land to withhold a portion of the purchase price and pay it directly to the ATO at settlement. The amount that the buyer withholds is either 1/11th of the purchase price, if the margin scheme does not apply, or 7% of the purchase price, if the margin scheme does apply.
Vendor’s obligations
As a vendor, your legal representative must first advise the buyer whether they are required to withhold GST. If GST withholding is required, your legal representatives must provide the purchaser with all relevant details required for the payment of GST to the ATO. There are penalties for not notifying the buyer of GST withholding, which includes a maximum, penalty of 100 penalty units for individuals, equaling to $21,000, or 500 penalty units for corporations, which equals to $105,000.
What is the Margin Scheme?
The margin scheme is only available for vendors who are registered for GST and who sell their property as part of their business and made in furtherance of their enterprise or business. The margin scheme is also only available where the sale of the property is taxable. There are always exceptions to eligibility of such schemes, so we recommend visiting the ATO website for a full list of when you cannot use the margin scheme https://www.ato.gov.au/business/gst/in-detail/your-industry/property/gst-and-the-margin-scheme/?anchor=Eligibilitytousethemarginscheme#Eligibilitytousethemarginscheme
- Capital Gains Tax
Capital Gains Tax (CGT) refers to the tax you must pay where you have sold a property for more than you purchased it for. You will be required to pay CGT on the profits that are earned from the sale of property, that was not used as your main residence. This means that you will likely be required to pay CGT on investment properties, vacant land, business premises and other properties that are not your main place of residence.
The amount of CGT you are required to pay depends on multiple factors to the property. To calculate your CGT, visit the ATO website https://www.ato.gov.au/individuals/capital-gains-tax/calculating-your-cgt/.
Can I get a CGT discount?
Yes, there is a CGT discount of 50% available for Australian vendors who have owned their property or asset for more than 12 months. Note that this discount is available only for Australian resident for tax purposes.
- Conditional vs unconditional contract
There are important differences between a conditional and unconditional contract that affect you as buyer or seller.
Conditional Contract
As the name suggests, a conditional contract imposes certain conditions, known as special conditions into the contract of sale. If these conditions are not met, the sale of the property cannot proceed. Examples of special conditions may include that the contract is conditional upon the purchaser obtaining finance approval, obtaining building reports, or any other condition put into the contract. Once the conditions of the contract are met, the contract becomes unconditional.
A conditional contract usually serves to protect the purchaser as the conditions act as a safeguard for the purchaser’s interest and can allow the contract to be rescinded before the conditions are met. It may also serve the vendor, as it ensures that the purchaser has loan approval.
Unconditional Contract
Such as a conditional contract is preferred by buyers, an unconditional contract is usually preferred by vendors. An unconditional contract means that both parties agree to all the terms in the contract as written and must follow through once signed, thus securing the sale for the vendor. Usually, unconditional contracts are used for properties sold at auction as it immediately binds the parties to the contract. As a purchaser, putting up an unconditional offer to the vendor may help you secure the property in a tough property market.
If you are a purchaser, you must be absolutely certain that you will follow through with the sale as you are bound by the terms upon exchange. Importantly, as a purchaser, you should already apply for, or have a ballpark estimate of a loan/finance approval before you enter into an unconditional contract.
So, which should you choose?
Both types of contracts serve a different purpose and are preferred by both vendors and purchasers for different reasons. Before signing a contract of sale, you should obtain legal advice to ensure you understand your obligations under that contact. The experienced team at Melbourne Lawyers & Mediators can provide assistance and advice throughout the buying/selling process to ensure that you make the best decisions for your circumstance.
If you’re thinking of buying or selling, our team is here to help you and answer your questions about the home buying or selling process. Contact Melbourne Lawyers & Mediators on email at info@melblawyers.com.au or call 1800 99 31 32 to receive accurate conveyancing services with no hidden costs and quality advice from professional lawyers.
