Do Pre-nups really mean anything?

Binding Financial Agreements

“PRE-NUPS, POST-NUPS & DURING NUPS”

Many have heard of the term “Pre-Nup Agreement” usually from American movies or sit-coms.

The general impression is that it is an agreement made between people who are about to get married and one party wants to protect their assets as they have significantly greater assets than their proposed partner.

In Australia these agreements are called Financial Agreements and are pursuant to the Family Law Act. They can be entered into prior, during or after marriage and similarly prior, during or after the end of a de-facto relationship.

Such agreements set out how your property will be divided if your relationship comes to an end. The agreement will determine how your property will be divided and prevents the Family Courts from being involved.

Such agreements are becoming quite common where people are entering into second or more marriages and have children and assets from previous relationships. Their advantage is to enable both parties to make sure that the terms of any property division are agreed up front and will not end up the subject of protracted and invariably costly litigation.

After separation they are an alternative to obtaining consent orders from the courts.

Financial agreements are not in fact binding unless the requirements of the Family Law Act are met. One of these requirements is that both parties receive independent legal advice for such agreements to be valid. What this means is, you should ensure that you meet with a solicitor with experience of these types of financial agreements.

It is important to note that no other form of document (excluding orders from a court), is effective in determining a property division after separation. Any such document may be overturned by a court at a later date.

Another important advantage of Financial Agreements is that a transfer of real property made pursuant to such an agreement, does not incur state stamp duty. This alone will often cover the cost of such an agreement.

The team at QLD Law Group are here to help you through these agreements. Please contact Simon Pattison on 3221 8000 or simonpattison@qldlawgroup.com.au to discuss your personal circumstances further.

Changes to REIQ Contracts

Is 13 a lucky number?

The QLS and the Real Estate Institute of Queensland have released the 13th edition of the standard “Contract for Houses and Residential Land”.

The contract and the standard “Contract For Residential Lots In A Community Titles Scheme” (now in its 9th edition) has been updated as a result of changes to the Fire and Emergency Services Act 1990, introduced by the Fire and Emergency Services (Domestic Smoke Alarms) Amendment Act 2016.

The Changes are the same in both contracts with Clause 1 Definitions going from:

“Compliant Smoke Alarm” means a smoke alarm complying with sections 104RB (2) or (4) of the Fire and Emergency Services Act 1990;”

to

“Compliant Smoke Alarm” means a smoke alarm complying with the requirements for smoke alarms in domestic dwellings under the Fire and Emergency Services Act 1990;”

Not a big change but as always the latest editions of the contracts should be used to avoid any potential issues.

Foreign Buyers Stamp Duty Surcharge

From 1 October 2016 the foreign persons acquiring residential land in Queensland will pay a 3% stamp duty surcharge on entering into any new transactions.

What is Residential Land?

Residential land is land that is or will be solely or primarily used for residential purposes, and on the land:

  • there is or will be a building designed or approved by a Council as a single family residence;
  • there is or will be a number of lots in a strata title building; and
  • an existing building will be renovated to be a house or apartment complex,

Who are Foreign Persons?

  • Individuals who are not Australian citizens or permanent residents (including the Subclass 444 visa New Zealanders);
  • Companies incorporated outside Australia, or Australian companies in which foreign persons have an interest of 50% or more; and
  • A trust where 50% of the “trust interests” are held by foreign persons. For a unit trust this will simply mean looking at the unit register, and in the case of discretionary trusts, identifying the “takers in default” to see if any are foreign persons. The trust interest is simply the proportion available to each taker in default – in a case where there were two takers in default, if one was a foreign person the trust would be a foreign person also.

Are Indirect Acquisitions Caught?

Yes. Any acquisition by a foreign person of an interest in a landholder which has an interest in residential land will be subject to the surcharge where the acquisition is otherwise dutiable.

When Does AFAD Apply?

It applies to any contracts entered into on or after 1 October 2016, whether or not pursuant to a pre-existing option.

How is AFAD calculated?

Under section 244 of the Act, AFAD is imposed at the rate of 3% on the dutiable value of the transaction (usually the purchase price) to the extent of the foreign person’s interest in the AFAD residential land. For example, if a foreign person acquires a residential home for $1 million, they would need to pay an additional $30,000 in AFAD on top of their usual transfer duty liability.

  • Where AFAD applies, the top marginal rate of duty in Queensland will be 8.75%.

Within 30 days of a transaction to which AFAD applies, the foreign acquirer must lodge an AFAD statement in the approved form with the Queensland Office of State Revenue. A failure to lodge this statement is an offence.

New Tax On Sale of $2 Million+ Properties

The Issue

The Federal Government is concerned that property owners, particularly foreign persons are not paying Capital Gains Tax on the sale of property.


The Law

On or after 1 July 2016 on the sale of Affected Property, the Buyer will have to withhold 10% of the sale price and pay that to the Australian Taxation Office (ATO) unless the Seller has a Clearance Certificate.

Residential Properties under $2 Million at market value will not be Affected Property.

If the withholding tax is not paid then the ATO may pursue the Buyer for the tax that should have been paid as well as interest leaving the Buyer to recover that money from the Seller like the current GST regime.

  • Affected Property

This withholding is limited to taxable Australian property, being:

  1. Real property in Australia – land, buildings, residential and commercial property;
  2. Lease premiums paid for the grant of a lease over real property in Australia;
  3. Mining, quarrying or prospecting rights;
  4. Interests in Australian entities whose majority assets consist of the above such property or interests – this is called an indirect interest;
  5. Options or rights to acquire the above property or interest.
  • Exclusions

If a foreign resident Seller falls within one of these categories then the 10% withholding tax is not applicable:

  1. Real property transactions with a market value* under $2 million, ensuring that the vast majority of residential house sales will be unaffected by this measure;
  2. * Note: if a sale price negotiated between a Seller and a Buyer is on an arm’s length basis, then the sale price may be used as a proxy for market value.

  3. Transactions listed on an approved stock exchange;
  4. The foreign resident Seller is under external administration or in bankruptcy.

The Solution

If a Seller doesn’t want 10% of the sale price given to the ATO the Seller will need to get a Clearance Certificate before settlement.

Only a Seller who is not a foreign person for taxation purposes can get a Clearance Certificate.

The Clearance Certificate confirms that the withholding tax is not to be withheld from the transaction.

The Seller may apply for a Clearance Certificate at any time they are considering the disposal of Affected Property. This can be before the property is listed for sale. The Clearance Certificate will be valid for 12 months and must be valid at the time the Certificate is given to the Buyer prior to settlement.

The Application for a Clearance Certificate (as will the Buyer’s payment protocol) will be on line and the ATO will set up that link on 27 June 2016 but for now click here to read the ATO fact sheet ato.gov.au/FRCGW

The Buyer of Affected Property should withhold the withholding tax from the Seller at settlement and pay that to the ATO unless the Seller provides a Clearance Certificate. If the withholding tax is not paid then the ATO may pursue the Buyer for the tax that should have been paid leaving the Buyer to recover that money from the Seller like the current GST regime.


The Rhino Rule

If you are buying or selling a property over $2 Million be very careful or you may find yourself paying penalties and interest to the ATO.

If you are the Buyer of an Affected Property you must pay the withholding tax to the ATO without delay as penalties and interest may apply to late payments.

If you are the Seller of an Affected Property get a Clearance Certificate and give that to the Buyer before settlement.

The Good News!

Concessions and exemptions for home buyers and retirement village residents:

1. Abolition of Mortgage Stamp Duty;

2. An increasing in the threshold for the firm home buyers duty exemption from $320,000.00 to $500,000.00;

3. An increase in the ceiling for the principal place of residence concession from $320,000.00 to $350,000.00; and

4. An extension of the principal place of residence concession to retirement village residents who adopt lease and sub-lease occupancy arrangements, which has never applied before.

When combined with the new duty rates, these concessions and exemptions will reduce the duty payable on homes valued between $320,000.00 and $1,000,000.00.