As we approach the end of the financial year, sellers who pay land tax on their residential property will be mindful to ensure their contract of sale settles before 30 June 2022 (being the end of the Queensland land tax year).
To that end, those contracts should have a fixed settlement date on or before 30 June 2022.
new editions of the reiq contract
As agents would be aware, this is the first financial year that the following updated REIQ contracts are in circulation and widely used:
- REIQ Contract for Houses and Residential Land – Seventeenth Edition; and
- REIQ Contract for Residential Lots in a Community Titles Scheme – Thirteenth Edition.
The standard terms of REIQ contracts above contain a right for either party to extend the settlement date by up to five business days after the scheduled settlement date listed in the contract.
Around the end of the financial year period, this right to extend the settlement date may have significant and unintended consequences for sellers that are liable to pay land tax on their properties.
The standard terms of these contracts also make the seller liable for all land tax assessed on the land for the financial year current at the settlement date (given there is no provision to apportion land tax between the parties at the contract's settlement under the standard terms of each REIQ contract).
If either party were to use their right to extend the settlement date under the REIQ standard terms of contract until after 30 June 2022, this could mean the seller is liable to pay an entire additional year's land tax on the land at settlement of the contract.
how does this work?
We've outlined an example of what would happen if the settlement date were to be extended to occur in the new financial year.
The seller enters a REIQ contract to sell their house and land to a buyer on 29 May 2022.
The value of the land is such that the seller is liable to pay land tax on the property each year.
The settlement date is listed in the REIQ contract to be 28 June 2022.
The buyer exercises their right under clause 6.2 of the REIQ Contract for Houses and Residential Land – Seventeenth Edition to extend the settlement date by five business days.
Settlement of the contract then takes place on 5 July 2022.
As a result of the settlement extension into the new financial year, under clause 2.6(4) of the REIQ contract the seller is liable to pay land tax assessed on the property for the financial year ended 30 June 2023 (i.e. an additional full year's land tax on the land).
Had the contract been settled on the original date of 28 June 2022, the seller would only have been liable to pay land tax assessed on the property for the financial year ending 30 June 2022.
Particularly around the end of the financial year period, sellers (and agents when preparing contracts on a seller's behalf) should consider whether to delete the right to extend the settlement date in the REIQ standard terms of contract (by way of special condition) before the parties sign.
This would avoid an unexpected and unwelcome land tax surprise for sellers by ensuring the original settlement date (pre 30 June) remains fixed in the contract.
get in touch with us!
We have significant experience in drafting special conditions for the REIQ forms of contract to ensure sellers' interests are protected.
Our experienced team of lawyers and paralegals is also well equipped to assist in all aspects of contract preparation and conveyancing of residential and commercial real estate.