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Dear Taxed Out members,
On Friday the 10th of June Taxed Out met with the representatives from the Department of Planning and Community Development (DPCD) and the State Revenue Office (SRO) for a briefing on the Planning and Environment Growth Areas Infrastructure Amendment Bill 2011 currently before Parliament.
The amendments relate primarily to the Sale of property and the right of a purchaser to defer GAIC charges until Statement of Compliance stage. Deferral of the GAIC will be automatic on the first and any successive sale of the land. While the GAIC triggers - Sale, Subdivision or Building Approval in excess of $1 million - have not changed, the right to defer 100% of the GAIC on any sale of the land will protect existing property equity and ensure purchasers of land can purchase land without incurring 30% of the GAIC as an upfront payment plus interest on the balance.
The GAIC will be indexed annually (the current rate is 3.18% p.a.) until applicable land is included in a Structure Plan. Once incorporated into a structure plan indexation ceases and interest is applied instead (the current rate is approximately 6% p.a). This part of the legislation has remained unchanged as has the right to undertake minor boundary re-alignments and the right to exempt 2 hectares including a dwelling from GAIC payments. If you are considering a boundary re-alignment or subdividing a dwelling and 2 hectares then it is advisable to seek professional advice as the incorrect approach may trigger GAIC.
It is important to note the Bill before parliament has not yet been enacted and consequently the amendments may not apply if you are currently negotiating a sale. Please seek legal advice on this matter if you are preparing to sign contracts for the sale of property subject to GAIC.
A new addition to the legislation is the introduction of Works in Kind agreements (WIK). These agreements provide for certain works or land contributions in lieu of GAIC payments. An agreement will only be entered into if there is a demonstrated benefit relating to the provision of infrastructure or an obvious community benefit. We do not get the impression they will be commonplace. WIK agreements will be registered on Title with harsh consequences flowing if the conditions are not met. Failure to complete a WIK agreement can bring forward full GAIC payments well advance of the Statement of Compliance Stage.
As this will generally be a matter for a purchaser it may not seem relevant to an existing landowner however any action that may bring forward the requirement to pay GAIC will be viewed by the finance industry as an additional risk to mortgage security. Consequently any difficulty faced by a purchaser in seeking finance is likely to have an impact on property values and in that sense it is an important issue for landholders.
Control over when GAIC is payable is important from a lender's perspective if full market value is to be relied upon for lending purposes. Current amendments providing for full deferral on sale should be satisfactory for lending purposes, however lending covenants requiring mortgagee consent to subdivide or apply for a Statement of Compliance are likely to apply to ensure GAIC payments are confined to SOC only. Equally WIK agreements are likely to require mortgagee consent to ensure the timing of GAIC payments cannot be brought forward as a result of non- compliance.
The GAIC Notice recorded on property titles will remain in place for the foreseeable future. DPCD and SRO advise it is required to track the liability through the development process. Property transactions have taken place where GAIC has been paid and up to 70% deferred and as a consequence the liability needs to be traceable until final payment is made. Taxed Out argue that those properties which have not triggered a GAIC event should have the Notice removed as tracking and final payment of the liability can be monitored via the Planning Permit, Building Permit or Statement of Compliance process.
Common sense would suggest there are few if any cases where purchasers will not defer 100% of the GAIC until development approval is granted. There are requirements for a purchaser to be notified of the potential to pay GAIC via a Vendors Statement when land is sold and a further opportunity to inform those seeking to develop land when application is sought for Statement of Compliance. Our view remains that there is little justification to keep GAIC Notices recorded on title.
While the GAIC Notice will remain an annoyance to most landowners, provided it has no bearing on market value assessments and informs purchasers that NO GAIC is payable on any sale of the land, it should have no impact on property equity or market value. At the end of the day that is essentially what we have all been striving for.
Regards
Michael Hocking
Chairman of Taxed Out Inc.
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