In Check Issue 75 | June 2017

28 June, 2017
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CGT withholding regime important changes from 1 July

From 1 July 2017 some CGT withholding regime requirements will change.  They are:

  • lowering the price threshold for real property to $750,000 (currently $2M)
  • increasing the withholding amount to 12.5 per cent (currently 10 per cent).

These changes were brought in by the Treasury Laws Amendment (Foreign Resident Capital Gains Withholding Payments) Bill 2017.  The explanatory memorandum states the amendments will apply to acquisitions after 1 July and that purchasers are generally taken to have acquired property when they have entered into contracts.

Practitioners should ensure they amend their contracts from 1 July 2017 to include these new thresholds.

For more information on the CGT withholding regime see LPLC’s three amended bulletins here.


Cyber security – focus your attention

We have just emailed a cyber security bulletin to practitioners letting them know about a recent claim where a firm received a fake client email directing the firm to send client money to fraudster’s bank accounts.

Every staff member needs to read the bulletin, Cyber security checklist and other material on the cyber security section of our website.  Firms need to review their protocols and cyber security measures.

Cyber fraudsters are becoming more and more sophisticated as the recent ransomware attacks around the world demonstrates and everyone needs to focus their attention on this significant risk issue.


Checklists

We have added four new Key risk checklists and reviewed and updated existing checklists on our website.

The four new checklists are:

Key risk checklist: Client intake

Key risk checklist: File transfer to another firm

Key risk checklist: File transfer to another practitioner within the firm

Key risk checklist: File closing

The existing checklists cover a range of practice specific and practice management topics and as the name suggests cover the key risks we see in the relevant areas. You are encouraged to review the checklists and either use them as they are or adapt them for your workflow and matter checklists.


Common GST questions

Half of the GST claims this year relate to residential property.  While most practitioners will be alive to the issue of GST for commercial property, you should not forget that GST needs to be addressed for new and substantially renovated residential property.  For information on new and substantially renovated residential property see GST ruling 2003/3

Leased converted residential premises

Q: My client is registered for GST and is selling a second hand residential property that has been converted into consulting suites for three doctors.  There are three separate leases in the names of the three doctors and one of the doctors now wants to buy the freehold. Is this a going concern when the purchaser is the same as the tenant for one third of the property?

A: There are two issues to consider here:

Nature of premises

To determine if the property is residential premises and eligible for input taxed treatment, you need to refer to ruling GSTR 2012/5, particularly paragraphs 9 to 45. The ATO considers whether premises are ‘residential premises to be used predominantly for residential accommodation’ (s.40-65, GST Act) is to be determined objectively by reference to the physical characteristics of the premises rather than the subjective intentions of the parties.  The premises must also be capable of lawful use as a residence to be residential premises

It is not so much a question of what is the current or past use but whether the alterations made to enable use of the building as consulting suites have so altered the physical characteristics of the building that it can no longer be regarded (when viewed objectively) as being residential premises to be used predominantly for residential accommodation.

If the premises are still ‘residential premises’ and are not ‘new residential premises’, supply will be input taxed under s.40-65 of the GST Act but, if they have lost that essential residential character, supply will be taxable except to the extent that the supply can be treated as the supply of a going concern.

Going concern

The ATO treats a supply of a tenanted property to the sitting tenant as not qualifying for the going concern exemption.  In this case two areas are not leased to the purchaser and so those areas could be treated as going concerns and the supply would be a mixed supply. You could insert ‘plus GST’ and ‘going concern’ in the relevant boxes and include a special condition explaining that the supply is the supply of a going concern as to the areas occupied by areas x and y and a taxable supply as to the supply of the area tenanted by the purchaser.

If the purchase was by a different entity to the purchaser, there would be no need to apportion since the whole supply could qualify.

Leased residential premises

Q: Our vendor client company is selling a property with six residential units on title. Units 2-6 are currently leased, the total rental combined is $45,000.00.  All tenants will remain following settlement and the managing agent is in the process of finding a tenant for unit 1. How do we treat the GST?

A: The supply of residential premises (not being new residential premises or commercial residential premises) is input taxed by virtue of s.40-65 of the GST Act, regardless of whether the supplier is registered for GST or in the business of residential sales. No GST treatment is required and the contract should not be treated as a going concern.

For further information see the FAQs on our website.


Risk Management Seminars

2017 Risk Management Intensive
This month we released the full program for this popular Melbourne seminar being held in Melbourne on 26 July, 3 August and 8 August.

Regional workshops – Estimating costs effectively with Liz Harris
Tuesday 22 August 2017| Warragul | Half day $145.00 including GST | 3 CPD points

A full program of 2017 risk management seminars is listed on our website under Training to help you to map out your CPD year.


Law Institute Journal articles

Each month LPLC writes an article for the Law Institute of Victoria’s journal. The articles are posted on our website at the start of each month. Three articles have been published since the March issue of In Check.

April 2017       How to defend against cyber crime
Practitioners need to do more to keep the door locked. Virtually all law practices today are vulnerable to cyber attacks which have the potential to disrupt delivery of legal services and compromise the security of clients’ confidential information.

May 2017       Be prepared
Office policies and procedures are good risk management. There are many risk management benefits to having well-written and implemented office policies and procedures, including enabling employees to clearly understand their individual and team roles and responsibilities within the firm.

June 2017      Stay on the estate
Practitioners handling estate matters should not get involved in family disputes. As disputes between family members arise frequently in estate matters, practitioners need to be alert to their duties to executors and beneficiaries as well as potential conflicts of interest.


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