Over recent years, Queensland property law has been subjected to change like never before, leaving an indelible mark on the residential market. Below, we explore some of the key changes and shifts, including the transition to a digital future, policy reform and developing case law.
2017 saw a raft of changes impact the way property transactions are carried out in Queensland:
- Increase in land tax for absentees – for individuals considered an absentee for land tax purposes (ie individuals that do not usually live in Australia or an external territory) at 30 June 2017 and for the following years, a surcharge of 1.5% will apply to the land owned by that individual. It is calculated as (Taxable value - $349,999) x 1.5%.
- Annual vacancy fee (FIRB) – an annual vacancy fee is now levied on foreign owners of residential real estate where the property is not occupied or genuinely available on the rental market for at least six months in a 12-month period. The vacancy fee applies to foreign persons who made a foreign investment application for residential property from 7:30 pm (AEST) on 9 May 2017 and also applies to foreign persons who purchase in a development that has a New Dwelling Exemption Certificate which was applied for after 7:30 pm (AEST) on 9 May 2017.
Foreign owners of residential real estate will be required to lodge an annual vacancy fee return with the Australian Taxation Office after the end of the 12-month period (vacancy year) in which the foreign person may be liable for the vacancy fee for their property.
- Foreign resident capital gains withholding – for contracts entered into on or after 1 July 2017, the withholding threshold was decreased from $2,000,000 to $750,000 and the withholding tax rate increased from 10% to 12.5%.
This has significantly increased the number of vendors required to apply for clearance certificates, but the practice of attaching these certificates to the contract of sale has quickly developed.
What to expect 2018-2019
In short, changes, changes and more changes! We’re expecting significant reform to the property industry in Queensland:
- Adoption of e-conveyancing – the roll-out of transactions for residential properties that may be registered using Property Exchange Australia (PEXA) includes priority notice, caveats (and withdrawals), transfers (including property information (transfer) and foreign ownership information), national mortgage form and releases of mortgages. More documents are expected to be added and take-up is expected to increase in line with national trends. Currently, the use of PEXA is not mandatory.
The shift to e-conveyancing brings with it a range of issues for law firms including trust accounting, governance, resourcing and procedural changes.
Additionally, the shift to e-conveyancing is playing out in an environment where:
- the sole online platform (PEXA) is for sale, which may result in private ownership; and
- other players (such as the ASX / InfoTrack partnership) are contemplating building a rival e-conveyancing platform.
- Additional Foreign Acquirer Duty – the rate of the additional foreign acquirer duty (which was first introduced for transfers of residential land on 1 October 2016) is expected to increase from 3% to 7% on 1 July 2018 (refer to the Queensland Government’s Mid-Year Fiscal and Economic Review).
- GST withholding – in an effort to eliminate the prevalence of developers who sell residential properties, collect the relevant GST and subsequently initiate insolvency before the GST is remitted to the ATO (‘phoenix entities’), the Federal Government has enacted a GST withholding scheme.
Reminiscent of the current Capital Gains Tax (CGT) withholding regime, the legislation will require, from 1 July 2018, vendors selling residential properties (including potential residential land) to notify the purchaser prior to settlement whether GST is to be withheld or not. If so, the purchaser can elect to either remit the GST to the ATO on or before settlement or give to the vendor a bank cheque made payable to the ATO for the amount.
There will be a two year transition period for contracts entered into before 1 July 2018 which settle before 1 July 2020.
The withholding rates will vary for full taxable sales (1/11th of the contract price) and margin scheme sales (a fixed 7% of the contract price regardless of the actual margin). The cash-flow of vendors will likely be impacted under this scheme, as money which would have typically been remitted as part of the vendor’s monthly or quarterly BAS return process will now become payable on or before settlement.
Our tax team published an article on the amending bill which has been enacted without any changes. That article can be accessed here.
- Body Corporate reform – Queensland is currently reviewing the regulatory regime for community title schemes, which may result in the adoption of aspects of the reform that have occurred in New South Wales. For example, in New South Wales, 75% of lot owners may ‘force’ the sale of the remaining 25% (the current legislation requires 100% to vote in favour of any sales of this nature – without a court order).
- Short stay restrictions – Airbnb and similar platforms will continue to be a contentious issue throughout 2018. The courts are continuing to grapple with the rights of a statutory organisation like a body corporate imposing restrictions on the use of privately owned apartments.
A recent decision of the Privy Council builds upon a 2017 decision of the WA Supreme Court which upheld a restriction of leasing for less than 3 months within a 12 month period. This is inconsistent with the current views of the Victorian Supreme Court. In Queensland, various orders by adjudicators have held that by-laws seeking to restrict short term stays are invalid.
We expect the issue to be on the agenda in 2018.
- Physical certificates of title expected to end – legislation currently before the Queensland parliament will remove the requirement to lodge any existing certificate of title with new dealings.
- Ipso Facto Insolvency Reforms – from 1 July 2018, a party to a contract entered into after 1 July 2018 will not be able to rely on a right to terminate that contract which is triggered by, or arises as a result of, the appointment of a voluntary administrator or receiver or the proposal of a scheme of arrangement. Such termination rights are typically included in off the plan contracts of sale.
Other termination rights which may exist are not disrupted and parties will continue to be able to terminate on other grounds such as for non-payment of the balance of the purchase price.
This stay on enforcement of so called ipso facto clauses will apply to any contract, agreement or arrangement entered into after 1 July 2018 which contains an ipso facto termination clause (other than any contract, agreement or arrangement which has been expressly excluded under the relevant regulations or by ministerial declaration). It will not however apply to any contract, agreement or arrangement entered into prior to 1 July 2018 or to any variations or amendments which occur after 1 July 2018 to contracts entered into prior to 1 July 2018.