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In Check Issue 81 | December 201818 December, 2018
Table of contents
Holiday season reminders
The lead up to Christmas with the extra commitments and pressure is a high-risk time for mistakes and oversights. Be diligent and maintain your risk management practices— now is when you need them most.
Here is a reminder of the top three areas where we see the most mistakes and oversights during this busy period
- Don’t let clients pressure you into taking shortcuts.
Clients may insist you prepare their contracts or vendor statements ‘yesterday’. We recommend you resist this pressure wherever possible. If you do prepare a document in a hurry take the time to:
- proofread your work, or preferably have someone else do it with fresh eyes
- provide the client with a written warning about the risks of doing things in a hurry, especially if it involves using a short form vendor’s statement or entering into risky agreements.
If you are pressured to distribute estates before Christmas, double check the cheques are going to the right people for the right amounts. Warn executors in writing of the risks of distributing within six months after probate is obtained, if that is what they want to do.
If you are selling estate assets, particularly shares, make sure you have those instructions in writing and that you are selling only what you are meant to be selling.
- Keep track of dates and deadlines, particularly if the office will be closed over the holiday season.
Be mindful of the public holidays that occur over the holiday season when calculating deadlines and time limits. We have had claims in the past where practitioners have not taken into account the impact of public holidays when calculating business days for the purpose of serving rescission or termination notices.
If sending notices by post make yourself aware of when the item is deemed to have arrived. Section 160 of the Evidence Act 2008 (Vic) states that an article sent by post is presumed to be received on the fourth working day after being posted. The same provision in the Commonwealth Evidence Act says the seventh working day. The presumption can be displaced by evidence to the contrary or by the terms of a contract.
Diarise relevant dates in more than one person’s diary. In the often-frantic lead up to the holidays, it is easy for one person to miss a diary reminder so ensure it is in multiple places. We have had claims where unexpected absences at this time of year have meant deadlines for filing or lodging documents were missed. No one else had the deadline listed in their diary, and everyone was otherwise too busy to check the absent lawyer’s diary.
It is at this time of year that conditional contract deadlines can slip by and suddenly the contract is unconditional. Clients will be as busy as you and forget to call and tell you about their finance. Make sure your client understands the effect of the ‘subject to finance’ clause before the time expires.
- Have good hand over procedures
Many staff will take extended holidays after Christmas. Do you know what needs to be attended to over that time, have you made provision for it — are there any settlements due or deadlines looming? Has there been a thorough handover memo done on files? Are the remaining staff going to be adequately supervised and supported?
This season brings with it ample room for mistakes, so take steps now to ensure you and your clients have a happy new year.
Land tax and duty claims
The State Revenue Office’s annual report shows they have audited 8,877 cases in the last financial year and assessed $464.2 million in outstanding liabilities. Land tax accounted for $141.7 million and $25.3 million in duty. Practitioners are often pursued by clients who are found to owe unexpected duty or tax because they failed to advise the clients about the appropriate tax rate or a double duty issue.
A common mistake that practitioners make involving land tax is they fail to pick up that the client purchasing land was a trustee, and so don’t notify the State Revenue Office (SRO) that the land was acquired by the purchaser in a trustee capacity. The surcharge land tax rate for trustees operates where the total value of land owned by the trust is $25,000, subject to several exceptions. This is a much higher rate than the general land tax rate which operates for land of $250,000 or more. See the SRO website for more information.
One of the key things to do to avoid these oversights is to always make it your business to ask the client if they are buying the property in a trustee capacity. This question is in our Key risk checklist: Purchase of land – questions for the purchaser. Very often the contract of sale, nomination form or other documents will refer to a trust – so read the documents carefully. Give the SRO the appropriate trust acquisition notice or advise the client to do so.
The most common mistake involving duty, is failing to advise purchasers that double duty will be incurred when a nomination occurs after a planning application has been made. Often the practitioner is aware the purchaser is proposing to do building works on the property and is going to lodge a planning permit but fails to give them a warning not to before they nominate a new, often corporate, purchaser.
Clear advice about the impact of doing any building works, which includes lodging a planning permit, is needed to avoid these mistakes. See sections 32I and 32J of Duties Act 2000 (Vic), our blogs Nomination woes – GST, foreign investment and stamp duty and Take a step back.
The best way to manage these and other tax and duty related risks is to use our Key risk checklist: Tax issues.
Planning for the worst – new LSB+C policy
We often see practitioner’s families struggle with a legal practice when a sole practitioner is incapacitated by illness or dies unexpectedly. While no one wants to think about these things, it is good risk management to have a plan in place to protect both your family and your clients.
Where there is no one who can step into the practice in an emergency, the Legal Services Board and Commissioner (LSB+C) is required to appoint a manger to the practice. This is a costly step for the practice and often, by necessity, intrusive for the family and practice.
To assist practitioners the LSB+C has developed a voluntary contingency and succession planning policy. The policy encourages sole practitioners and sole directors of incorporated legal practices to appoint a personal representative to step in and conduct the practice in the event of an emergency. It also suggests writing a contingency plan to assist the personal representative.
We encourage sole practitioners and sole directors to take some time to read the policy and think about how they could implement it over the new year period. Don’t put off planning these important steps until it is too late.
For more information on this topic see:
- our articles When a sole practitioner dies and Dealing with loss of capacity of a sole practitioner
- The LIV Practice contingency plan webpage.
Common GST question
Our website has many GST FAQs you should check when you have a GST issue before you use our GST hotline enquiry service, as the answers to many of the enquiries can be found in the FAQs. You should also use our GST checklist to assist you in analysing your question.
Margin scheme Q: We act for a vendor who proposes to sell existing residential land. The vendor is not registered or required to be registered for GST but the purchaser is. He plans to develop the property and is insisting ’margin scheme‘ be inserted into the contract. What are the implications for a vendor who signs such a contract when there appears to be no GST payable?
A: It is quite understandable that the purchaser should want to specify the margin scheme to protect against the possibility that the vendor was required to be registered. If the vendor was required to be registered, the supply would be taxable. If the purchaser did not buy on the margin scheme, he would not be able to sell on the margin scheme.
The margin scheme is only relevant where a supply is taxable, but the ATO accepts the concept of a provisional application of the scheme.
You can include ’margin scheme’ in the box but should also include a special condition along the following lines:
The vendor is not registered for GST and believes that they are not required to be registered and the supply of the property will not be taxable. The parties have inserted the words’margin scheme‘ on a provisional basis so that, if the supply of the property is found to be taxable, the margin scheme will apply.
What’s new on LPLC’s website
Key risk checklists
Key Risk Checklist: Taxes – revised
Law Institute Journal articles
What can go wrong (October 2018)
Be secure when advising lenders (November 2018)
A good precedent (December 2018)
Risk video bites
Three new risk video bites were released.
Fake bank account details (October 2018)
Stop and think (November 2018)
Define what you do (December 2018)
A new risk video bite is posted on our website, LinkedIn, Twitter and Facebook on the first Friday of every month and emailed to everyone who receives In Check. The email replaces the Friday blog email.
Office closure over New Year
Our office will be closing at 4.00pm on Friday 21 December and re-opening on Wednesday 2 January 2019. We wish you all a very safe and peaceful festive season and New Year.
The GST Hot line service will not be operating between 22 December and 1 January. The normal service will resume with Derry Davine at firstname.lastname@example.org on 2 January 2019.
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If you change your email address don’t forget to tell us so you will continue to receive our newsletters, emergency bulletins, seminar launches and blogs.