Look before you leap is an old age adage that is well suited to the situation where a client informs their practitioner that they want to nominate. LPLC has seen a number of claims where a practitioner has failed to fully advise a client about the consequences of nominating.
In one claim a practitioner was acting for a purchaser who was buying a commercial property subject to an existing lease. The sale was treated as a going concern for GST purposes. The purchaser nominated a substitute transferee.
After settlement, the Australian Taxation Office (ATO) asked the vendor why GST had not been accounted for on the sale. The ATO’s view was that the supply was taxable as there was no agreement between the nominee and the vendor that the supply was of a going concern.
In another claim a nomination was made after a planning permit had been issued to the purchaser to develop the land that was the subject of the contract. As a result, double duty was payable in accordance with s. 32J of the Duties Act 2000 (Vic).
These claims are a timely reminder to be careful when advising a client about nominating given the new rules that apply to acquisitions by foreign investors.
Where a foreign purchaser is nominated to take a transfer of residential property and that nomination is executed on or after 1 July 2015, additional duty of three per cent will apply. This is the case even if the sale contract was entered into before 1 July 2015. See s.28A of the Duties Act 2000 (Vic).
For more information about the new State Revenue Office (SRO) requirements relating to foreign investment conduct a word search of ‘foreign’ on the SRO website .
Here is a list of some other matters to consider where a client is thinking about nominating.
- Refer the client to their financial advisor before a nomination is made.
- Consider any GST and duty consequences of any nomination.
Check the contract of sale for any pre-conditions to nominating. For example, see the case of Damco Nominees Pty Ltd v Moxham [2012] VSC 79. In this case the contract provided that where the nominee was a company personal guarantees were required by any director.
