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What did they expect?
When sued by a client, the reaction from some practitioners is ‘What did they expect for what I charged?’
However, a court will give little regard to your fees when determining the extent of your retainer and whether you discharged your duty. You need to be clear about the scope of your retainer, irrespective of the type and size, and discharge your duty in every matter.
In one claim, the practitioner acted for the nominee in the purchase of an off-the-plan apartment. The practitioner’s costs disclosure form stated that she would prepare the transfer of land and nomination documents as well as arrange and attend settlement. She did not provide any pre-contractual or pre-nomination advice. She said she normally gives purchaser clients the option to have the contract of sale reviewed for an additional charge but did not do so in this instance as the client was eager to proceed with the transaction.
The client alleged the selling agent represented the apartment had an allotted car park. However, the contract did not refer to the carpark and the vendor did not intend to sell a car park with the apartment. Consequently, the client did not become aware of the car park issue until shortly before settlement. She then claimed the practitioner was under a duty to advise of the issue before the nomination was executed.
The practitioner said she did not ask the client what she thought she was buying and only became aware of her expectations and the agent’s representations just before settlement. She did not provide advice on the contract of sale because she did not consider she was retained to do so. However, the limited scope of work was not discussed and clarified with the client.
When acting for a purchaser in a conveyance, practitioners would ordinarily be expected to summarise key issues and unusual aspects of the contract and property, and confirm they are consistent with the client’s understanding. Purporting to limit a retainer to provide less than this is fraught with danger. It requires a clear written scope and advice about the risks of limiting the retainer, so the client can make an informed decision whether to limit the practitioner’s duty.
It is far better to add value for your clients by proactively asking questions and advising clients on all aspects of their purchase and charging appropriately for the service. Be the trusted professional legal advisor. It takes some work to show the value you can add but pays off in the long run.
Vendor/supplier GST withholding notice
There is no prescribed form for section 14-255 supplier GST withholding notice. Below is a suggested form of notice practitioners are welcome to use or adapt.Page two of the notice contains some notes for its use.
Medical Treatment Planning and Decisions Act 2016 (Vic)
- Appointments of medical treatment decision makers and advanced care directives replace medical powers of attorney and refusal of medical treatment certificates from 1 July 2018.
- Medical power of attorneys entered into before 1 July 2018 are taken to be appointments of medical decision makers.
- Any refusal of treatment certificates created before 1 July 2018 under the Medical Treatment Act will continue in force
- Specific capacity tests and witnessing requirements are in the legislation.
The Medical Treatment Planning and Decisions Act 2016 (Vic) (the Act) came into force on 12 March 2018. It changes medical treatment laws, in particular the way people can manage their medical treatment decisions if they lose capacity. It replaces the use of medical powers of attorney and refusal of medical treatment certificates with appointments of medical treatment decision makers and advanced care directives.
Practitioners who draw wills and powers of attorney, and practice in elder law should read and understand this new legislation and be able to advise their clients about it
Medical treatment decision maker
The Act sets out who can be a medical treatment decision maker for someone who has lost capacity. It allows a person to appoint a medical treatment decision maker but if they fail to do so, VCAT can appoint someone or there is a hierarchy list of relatives who can make decisions (section 55).
Appointment of a medical treatment decision maker
The appointment of a medical treatment decision maker must be in writing with non-prescribed forms available on the Office of Public Advocate website. Section 28 sets out the requirements, most notably that the document must be witnessed by two adult witnesses in the presence of each other, one of whom must be a medical practitioner or someone authorised to take affidavits. The authorised medical decision maker cannot be a witness.
A medical treatment decision maker can access health information about the patient relevant to the medial treatment decision (section 94).
The Act allows for the appointment of a support person who is authorised to support the person in making a medical treatment decision, communicate the decision that has been made and represent the person’s interests (section 32). Only one person can be appointed in this role (section 31) and the formal requirements for the written authority are the same as those set out above for the appointment of a medical decision maker (section 33). Support persons can access health information about the patient relevant to the medial treatment decision (section 94).
Advance care directives
The Act allows people to prepare advanced care directives while they have capacity (section 12). The directives can refer to specific treatment (instructional directives) or can specify general values and preferences of the person (values directives). A directive must be in writing and be signed by the person and witnessed by two adults, one of whom must be a medical practitioner.
The appointments and directives under the Act can only be made by a person if they have decision-making capacity. The test for capacity is set out in section 4. The person must be able to:
- understand the information relevant to the decision and the effect of the decision
- retain that information to the extent necessary to make the decision
- use or weigh that information as part of the process of making the decision
- communicate the decision as well as their views and needs as to the decision in some way, including by speech, gestures or other means.
This test is a general statement of what is required for assessing capacity and is similar to the test for testamentary capacity although the information relevant to making the decision is different. For more information on testamentary decision making see our practice risk guide Weatherproofing wills and estates.
There is a specific process set out in the Act whereby the advance care directives and authority of the appointed medical decision maker might not apply. These include:
- circumstances have changed (section 51)
- emergency treatment (section 53)
- palliative care (section 54)
- if the person is likely to recover decision-making capacity (section 59)
- compulsory patients (section 55(5))
- medical research (Part 5).
The Act repeals the Medical Treatment Act 1988 (Vic) but any refusal of treatment certificates created under the Medical Treatment Act will continue in force. Any appointments under an enduring power of attorney (medical treatment) will be taken to be an appointment of a medical decision maker (section 102). Any person given power to make medical treatment decisions by powers of attorney made under the Powers of Attorney Act 2014 (Vic) will be taken to be medical treatment decision makers.
The risks in acting in this area include:
- not properly assessing a person’s capacity to appoint a medical treatment decision maker or a support person
- not properly explaining to role of a medical treatment decision maker or support person so the client makes an inappropriate appointment
- not complying with the signing and witnessing requirements.
Practitioners who practice in this area need to:
- become familiar with the new legislation and the material on the Office of Public Advocate’s website
- update their precedent documents, letters, checklists and any policies about witnessing documents and testing for capacity
- give clients clear advice about what medical treatment decision makers and support people can do and the principles set out in section 7 of the Act.
- consider not preparing advanced care directives as these should be prepared in consultation with the client’s medical practitioner.
The Office of Public Advocate website has comprehensive information for both practitioners and their clients about the Act.
The Department of Health and Human services website health.vic contains more information and standard forms.
The Act can be found on Austlii here.
The Values and preferences for further medical treatment article in the May 2018 issue of the Law Institute Journal page 27.
New ipso facto regime has commenced
The amendments to the insolvency regime in the Corporations Act 2001 (Cwlth) to restrict the rights of parties to enforce ipso facto clauses in new contracts came into effect on 1 July 2018.
These clauses typically allow a party to terminate or exercise other contractual rights if the counterparty enters into an insolvency. Under the new regime, the enforcement of such contractual rights is stayed where the relevant agreement or arrangement was entered into on or after 1 July 2018. The duration of the stay period is set out in the legislation and a party seeking to rely on an ipso facto clause can apply to the court to lift the stay.
The regime has broad application but certain types of contracts and rights have been carved out. These exceptions have changed slightly since exposure drafts of the instruments were released earlier this year and are contained in the following instruments.
- Corporations Amendment (Stay on Enforcing Certain Rights) Regulations 2018
- Corporations Amendment (Stay on Enforcing Certain Rights) Regulations (No. 2) 2018
- Corporations Amendment (Stay on Enforcing Certain Rights) Declaration 2018.
Until 1 July 2023, contracts resulting from novation, assignment or variation of pre-1 July 2018 contracts are excluded from the regime under grandfathering provisions. Practitioners should advise clients on these provisions where appropriate.
According to the Explanatory Memorandum to the amending legislation a counterparty still has the right to terminate or amend an agreement for reasons other than an insolvency event, such as non-payment or non-performance. These clauses should be clearly written to avoid any ambiguity.
Practitioners should review their precedent documents and consider the potential enforceability of contractual rights in light of the changes. Any attempt to exercise an unenforceable right to terminate could result in liability for wrongful repudiation of the contract.
Some purchasers required to withhold GST from 1 July 2018
Suggested resources: Vendor/supplier GST withholding notice
- New GST withholding regime applying to some settlements from 1 July 2018.
- New notification obligations on vendors of new residential or potential residential land.
- New notification and withholding obligations on purchasers of new residential or potential residential land.
- Penalties apply for both vendor and purchaser if they fail to comply.
- Practitioners will be at risk of claims if they fail to advise clients about their new notification and withholding obligations and fail to take steps to ensure compliance.
From 1 July 2018 purchasers of certain new residential premises and potential residential land will be required to withhold the goods and services tax (GST) and pay it to the Australian Tax Office (ATO).
The new requirements are set out in subdivision 14-E of Schedule 1 to the Taxation Administration Act 1953 (Cwlth) (the schedule) as amended by Treasury Laws Amendment (2018 Measures No.1) Act 2018 (Cwlth)(amending Act) Schedule 5. The ATO has published LCR 2018/D1, a companion ruling which contains a number of practical examples.
Which transactions are affected?
The new withholding obligation applies to supplies by way of sale or long-term lease where the contract is entered into:
- on or after 1 July 2018
- before 1 July 2018 where the first consideration (outside of the deposit) is received (usually settlement) on or after 1 July 2020 (see schedule 5, Part 3 of the amending Act).
The supplies must be for:
- new residential premises, that are not:
- created through substantial renovations or
- commercial residential premises (e.g. motel – see GSTR 2012/6 for definition)
- potential residential land that is included in a property subdivision plan at the time of supply (i.e. settlement), where:
- the land does not contain buildings used for commercial purposes
- the recipient is not registered for GST and does not acquire the land for a creditable purpose, (section14-250(1) and (2)).
Potential residential land as defined in the A New Tax System (Good and Services Tax) Act 1999 (Cwlth) (GST Act) means land that can be used for residential purposes but does not contain any buildings that are residential premises. The most common example is vacant subdivided lots in a residential development.
Property subdivision plan as defined in section 195-1 of the GST Act means a plan for the subdivision of real property that is registered (however described) under an Australian law.
For the purposes of this bulletin we will refer to the premises and land affected by the withholding obligations as the relevant residential premises, the supplier as the vendor and recipient as the purchaser.
What must vendors do?
A vendor of residential premises or potential residential land must give the purchaser written notice before making a supply (i.e. prior to settlement) by sale or long-term lease (section14-255(1)). There is no minimum notice period.
This notification requirement applies to a wider range of property than the withholding obligations, namely all residential premises and potential residential land. However, there are two exceptions and they are:
- supply of commercial residential premises
- supply of potential residential land where the purchaser is registered for GST and acquires the land for a creditable purpose (section14-255(2)).
The notice must contain the prescribed details in section14-255(1), including whether the purchaser will be required to make a withholding payment. If they are required to make a withholding payment, the notice must contain:
- the supplier’s ABN (note this may not be the vendor under the contract of sale)
- the amount to be withheld
- when the withholding amount will be payable
- the GST-inclusive market value of any non-monetary consideration provided by the purchaser (if applicable).
Importantly, the notification obligations extend to existing residential premises, even where the supplier is not registered or required to be registered for GST (i.e. a sale of an existing premises between two private consumers).
Penalties for failing to notify
Failure to comply is a strict liability offence (section14-255(4) and (5)) with a maximum penalty of 100 penalty units ($21,000) for an individual and 500 penalty units ($105,000) for a corporation (currently $210 per penalty unit). The defence of honest and reasonable mistake of fact is available.
Where the strict liability offence is not prosecuted, there is an administrative penalty with a maximum 100 penalty units. There is no honest and reasonable mistake of fact defence available to a vendor failing to give a notice. However, a vendor will not be liable for the penalty for failing to give the full details required by section 14-255(1)(b) in a notice to the purchaser about withholding GST if, at the time of giving the notice, the vendor reasonably believed the purchaser was not required to withhold the GST (section14-255(6) and (7)).
The vendor is still liable for the GST
The withholding provisions do not move primary responsibility for GST from the vendor to the purchaser. The vendor remains the party primarily liable for GST and for reporting via its business activity statement (BAS). The adjustment of the vendor’s GST liability on the supply will occur in the first BAS return following the making of the supply.
In the BAS in which the supply is reported, the vendor should receive a withholding credit for the amount withheld by the purchaser. This withholding credit will be set off against the vendor’s actual GST liability on the sale of that property to which the withheld amount relates. Any difference between the amount withheld and the vendor’s actual GST liability will be either:
- realised as a refund owing to the vendor where its actual GST liability is less than the withheld amount or
- represent an additional payment owing by the vendor on that BAS where its actual GST liability is greater than the withheld amount.
There will almost always be a small discrepancy in the amount withheld against the vendor’s actual GST liability due to GST on settlement adjustments not being withheld.
Substantial differences between the withheld amount and the vendor’s actual GST liability will most commonly arise for sales where the margin scheme is applied (see below).
Vendors can apply for a refund
The vendor may apply for a refund separate to the BAS process where the withholding and payment were made in error by the purchaser (section18-85). Application must be made no later than 14 days before the date on which GST on the supply is payable, that is, the next BAS statement after settlement.
What must purchasers do?
Give notice to the Commissioner of Taxation
A purchaser must notify the Commissioner of the amount to be withheld on or before the day of payment of the first consideration other than the deposit, usually settlement (section16-150(2)). In practice, there will be two ATO forms for the recipient to complete – one to obtain a payment reference number (PRN) and lodgement reference number (LRN) for the withholding, referred to as form 1. The other form is to be lodged at the time of payment confirming the settlement date to the ATO, referred to as form 2. The PRN and LRN are needed for the purchaser to make the withholding payment.
These forms will be completed online. Details about the forms can be found on the ATO website here, although at the time of this publication the forms are unpublished.
Make a payment to the Commissioner
A purchaser must either:
- withhold the required GST amount and pay it to the Commissioner on or before the settlement date (section14-250(4)) or
- give the vendor a bank cheque payable to the Commissioner for the appropriate withholding amount at settlement (section16-30(3)).
If the purchaser provides a bank cheque payable to the Commissioner they should keep evidence that the vendor received it and was directed to pay it to the Commissioner.
Where a contract requires part of the consideration, other than the deposit, to be paid before final settlement, the time for payment of the withholding amount is when that interim payment is due. The full withholding payment associated with the transaction is required even where only part payment has been made. There is no statutory period of grace.
Purchasers are not required to be registered for GST to make the withholding payment.
Joint purchasers are treated as receiving a single supply and are jointly liable for the withholding. Either purchaser can make the payment. Multiple purchasers who are tenants in common are each treated as having received a proportionate supply and are liable for the withholding in the same proportion (section14-250(11)).
Payment to the Commissioner relieves a purchaser from liability to any entity other than the Commissioner to pay or account for that amount (section16-20).
Administrative penalty equal to the GST
A purchaser who fails to withhold or provide a bank cheque made payable to the Commissioner is liable for an administrative penalty equal to the amount that should have been withheld plus the general interest charge (sections 16-30(1) and 16-80).
Lack of vendor notification
A purchaser is not excused from making a withholding payment where the vendor fails to give the required notice. If this happens the purchaser must make their own assessment whether GST is required to be withheld and paid to the Commissioner. If they assess GST is required to be withheld the purchaser can simply pay the withholding amount direct to the Commissioner.
Where the vendor gives notice indicating the withholding obligation applies but specifies an amount that appears to be inadequate, the purchaser can pay the correct amount to the Commissioner.
Base amount for withholding calculation
The amount to be withheld is generally determined by reference to the GST inclusive contract price, without taking into account settlement adjustments. This is the contract price specified in the particulars of sale in cases where expressed as a GST inclusive sum or the contract price plus GST where expressed as a GST exclusive sum (section14-250(7)).
Where there is no price stipulated in the contract, or there is any non-monetary consideration provided, the withholding amount is calculated on the ‘price’ of the supply as defined in the GST Act, which would include both the monetary consideration and the GST inclusive market value of any non-monetary consideration provided.
The percentage or fraction to be withheld is:
- where the margin scheme applies to the transaction – generally, seven per cent or some other higher percentage as determined by the Commissioner not exceeding nine per cent (section14-250(6))
- where vendors and purchasers are associates and there is no consideration or a consideration less than the GST inclusive market value, 10 per cent of the GST exclusive market value (section14-250(9))
- where the sale is a ‘fully taxable supply’ (i.e. subject to GST at the full rate), 1/11th of the contract price or ‘price’ (see above) (section14-250(6)).
Should vendors include a special condition in the sale contract?
The new notice and withholding obligations are statutory obligations and must be complied with regardless of whether there is permission in the contract to do so.
However, for clarity and certainty the vendor and purchaser may wish to include a special condition in the contract regulating GST withholding issues as between themselves.
Special conditions are available:
- from the Law Institute of Victoria via elawforms and lawsoft or in hard copy from the LIV book shop
- on the LPLC website here drafted by Derry Davine, consultant lawyer to LPLC.
Flow chart one. Do GST withholding provisions apply?
Flow chart one
Flow chart two. GST withholding provisions apply – steps when acting for a vendor
Flow chart two
Flow chart three. GST withholding provisions apply – steps when acting for a purchaser
Flow chart three