Vendor Q&A
Owner Builders
A vendor recently updated the bathroom and kitchen in readiness for sale. The works did not require a permit and the vendor engaged a qualified tradesperson to complete the works? Is the vendor considered an Owner Builder.
Yes, because in the absence of the works being undertaken by a registered builder, such works will be treated as if they have been undertaken by the Owner as Owner Builder irrespective of whether the owner did any of the work.
As an Owner Builder, you will need to arrange for an Owner Builder Inspection Report to be undertaken by a qualified building inspector, which must not be less than 6 months old. In addition, if the works exceeded $16,000.00 you will also need to arrange Owner Builder Warranty Insurance.
If a contract is entered into in contravention of the Building Act, is not necessarily void, but is voidable at the option of the purchaser any time prior to settlement. Furthermore, a breach could result in the vendor incurring a $10,000 fine.
A vendor sells a property that was built by her predecessors on title in 2003, and the predecessors were owner builders who failed to take out the relevant insurance but did obtain an occupancy permit. Does the vendor need to comply with s137B of the Building Act ie. the requirement for insurance?
No, because s137B(2) refers to “a person who constructs a building” as being obliged to comply with this section. As the vendor didn’t construct the building, there is no apparent obligation to comply.
Owners Corporation (formerly Body Corporate)
I am selling my unit which shares a common area with another unit on the block. There is no active owners corporation and I do not hold any public liability insurance over the common land. Can I proceed to sell my unit without the relevant insurance?
It depends.
If there are only two lots on the plan of subdivision, Section 7 of the Owners Corporation Act 2006 (“OC Act”), provides an exemption in relation to insurance in this instance which means that the owners should arrange their own building reinstatement and public liability insurance. In that situation, there is no requirement for a Vendor to provide Owners Corporation insurance for the benefit of the Purchaser.
On the other hand, if a property has 3 or more lots, Section 6 of the OC Act provides that the Owners Corporation must take out public liability insurance for the common property with a cover of not less than $10M. Similarly, Section 11 of the Sale of Land Act 1962 provides that the owner of a property cannot sell a property unless there is an insurance policy in place in the name of the Owners Corporation.
Therefore, if you are selling a property that is affected by and Owners Corporation which has more than 2 lots, it will be necessary to arrange public liability insurance in respect of the common property with a cover of not less than $10M and the Policy will need to be in place prior to the day of sale. If you proceed to sell the property at auction or privately without having the insurance in place, the purchaser will have the right to avoid the sale at any time up until settlement.
If a property is sold in contravention of the OC Act, the purchaser can avoid the contract at any time up until settlement.
Capital Gains Withholding Tax
Why do I need to provide a Withholding Tax Certificate at settlement when I am selling my principal place of residence and I am an Australian Citizen?
If your property sells for $750,000 or above (the government has lowered the requirement for production of a Withholding Tax Certificate from $2M to $750,000 as at 1 July 2017) such sale will now be treated as a sale by a “foreign resident” for taxation purposes. Regardless of whether you are an Australian citizen or permanent resident, the ATO’s new legislation means that you are deemed to be a foreign vendor unless you provide a clearance certificate for any property sold for more than $750,000. This is also still applicable even in situations where the property being sold is your principal place of residence.
A clearance certificate, once issued, is vendor specific and is valid for 12 months.
If you fail to provide a Withholding Tax Certificate prior to settlement, the purchaser is obliged to withhold 12.5% of the sale price and remit it to the ATO. If this occurs you will only be able to reclaim that amount if you are not required to pay the tax, but you will need to wait until the end of the next financial year to do that. Therefore, it is in your interest to make an application for the Capital Gains Withholding Tax Clearance Certificate in the early stages of selling your property to prove you are not a foreign investor and there is no requirement to withhold such tax.
You can read more about this on the ATO Website: