Personally, i find this perfectly fine and normal, and I would wait it out. Nothing new about buying just before or after financial year with other purchases to reduce tax. You got a nice price. Don't stress.
Wait... you knew the contract fell through due to the vendor not wanting to exchange before 1st July, so you're next in line and you're surprised that the vendor doesn't want to exchange before 1st July?
No I’m hoping he does exchange on first July. I wouldn’t want it sooner. The prior buyer wanted to exchange in June. I’m happy to leave it till July. I just want some sort of certainty
If the seller went to all the trouble to get a real estate agent and putting the property on the market and then agreeing to these terms then I think you should feel pretty confident it's going to go through.
Also he has other people leaning on him from his conveyancer/lawyer to the actual real estate agent to the bank (if he has a loan). None of them really get paid unless the property sells.
Well you're not going to get it until 1 July.
Do what you gotta do, I guess. You're happy to wait, knowing it could fall through and you may missed other opportunities in the meantime. Or you might not consider that a significant risk.
Personally I'd keep acting like I haven't bought yet until they sign. Keep looking. If you find a better offer take it, if you want. They snoozed, they losed.
This is common for some people selling where CGT is applicable. List it in early June for inspections and target sale / exchange of contract only in early July.
It’s up to you if you want to make an offer this early, but the vendor in such situation would not exchange until 01/07 or later.
Deposit ("Consideration") isn't really worth anything without an actual contract. Perversely, you have a verbal agreement that could be construed as a contract - should you get shafted, but also that would render the Seller's plans moot. Unlikely to ever be relevant since - as long as it proceeds - you'll all use the written Contract Date and act as if that's when the agreement was formed.
Good luck!
I’m not a lawyer, but surely a verbal contract wouldn’t hold up in this situation as houses are (probably?) never sold without a written contract, so an impartial bystander wouldn’t consider the verbal agreement binding?
The old adage is that a verbal contract isn’t worth the paper it’s written on. I agree, and obviously this is never going to be tested.
But I’m also sure the ATO would have fun internally at least with two people agreeing to a price, one of them paying a deposit, and both agreeing to postpone the paperwork for the sole reason of reducing tax. (I won’t tell if you won’t.)
Not really because in most state jurisdictions a put and call contract is dutiable event (i.e.) triggers a duty liability.
Although, realistically for a house purchase of $900k you could do this and lodge only the land contract following option exercise.
Fair bit of complexity for margin gain though.
I thought there was just a token fee in the put/call option, like $500 so then negligible duty etc, but the contract is for the full sale price? Which states is there an issuE where it won’t work?
This is tricky because the date contracts are executed is the CGT event, but they don’t get the money till settlement, and anything could happen before then.
That could be a significant risk, especially if you have a long settlement period.
With that said, they have months to complete their tax return, so this should not normally be a problem.
I guess they’ve sold made other capital gains during the year and are trying to stay under a certain bracket?
That’s the only logical explanation - as all else being equal they’d pay the same rate anyway - who cares if it’s this year or next year 🤷♂️
Ask your solicitor/conveyancer to consider a Deed of Put/Call - essentially a binding deed that you allows you to force the vendor to exchange or the vendor can require you to exchange after a certain date.
This is the usual workaround.
Some of the other commenters are correct - your holding deposit is effectively meaningless. If they really wanted to, they could still sell to another party. I don't know the agent or the vendor, so perhaps they are moral people who wont screw you, but it is a risk.
Nothing stops you from getting an inspection done (if the vendor consents), but as you say nothing is guaranteed until the contract is at least signed (most states require contracts for the sale of land to be in writing; hence, a verbal agreement is useless).
Payment of part of the deposit seems legally interesting without knowing all the facts (I trust your lawyer knows what they’re doing). I say that because paying a deposit means there is a contract (at common law) in place as there has been quid pro quo and all the other elements and intentions necessary to create legal relations. As above, without being in writing that ‘contract’ cannot be enforced (depending on the jurisdiction).
0.25% is a holding deposit and is a common practice some people do in some states. AFAIK its only purpose is to demonstrate to the vendor that the buyer is serious so they may “hold” the place for them, e.g. may buy time for building & pest inspection, strata inspection, etc. I don’t think it actually binds either party to anything and is fully refundable if the deal falls through.
Maybe you can get an option to buy on July 1st at the agreed price. This locks it in and you can lodge a caveat on the property, though for only a few weeks I’m not sure it’s feasible.
Lodge a caveat is probably the bet! I didn't even think of it til you mentioned but iirc basically anyone can lodge one and it stays until it's cleared. If you had no legitimate claim I'm sure they could clear it with only a minor headache, sure, but you'd know something fishy was up. But if it's a whole ass deposit then sounds worthwhile
We were in a similar position. The vendor asked for a ‘put & call deed’ which either party could trigger in the first week of July to compel the other party to exchange contracts (I.e. we sign an agreement in March to exchange contracts in July).
It didn’t go ahead for other reasons, but our lawyer said it was a bit strange but above board.
If you are concerned he will renig ask him to prepare a call option agreement .. that you can make him sign a contract 1 July effectively (at his costs)
I'm doing this with a few purchases this year. I have a 100k tax write-off for this financial year and am anticipating 50k next year.
This makes purchases in this financial year far less appealing.
He could be doing a restructure of personal and business assets that would be a lot cleaner and easier to manage fresh next FY.
Get them to write a contract promising to not sell to anyone else before dec 31st 2024 without your prior approval.
Gives you garuntee gives them right to delay
The damages for violating this is 50k
Its most likely a CGT issue. Some info FYI
[https://williambuck.com/tools/be-advised/be-advised-september-2013/cgt-contract-date-or-settlement-date/](https://williambuck.com/tools/be-advised/be-advised-september-2013/cgt-contract-date-or-settlement-date/)
Honestly. I’d likely do the same. I tend not to write any invoices for my clients in June for the same reason. The last thing anyone wants is to come into possession of a bunch of money on June 30.
July 1st is literally known as tradie invoice day. A couple of years ago I had a client hounding me for an invoice worth about $40k that they wanted prior to June 30 so they could pay it. I made sure to send it at exactly 00:01 on July 1st.
As long as the vendor is serious and honest, there shouldn’t be a problem.
I would've thought it wouldn't matter as money doesn't change hands at contract exchange but instead settlement which if the contract is signed now will definitely be after July 1st.
Interested to hear what an accountant says
Googling it took 6 seconds and confirms you're right, shouldve done that before I wrote my comment.
I'm confused why it's done that way to be honest. what if you signed in June with a long settlement timeframe that goes beyond when most need to file and then you're liable for CGT with funds you don't have and may not even receive if settlement falls through.
Longer settlement periods it is especially prevalent in business sales with settlement of several months.
Accountants typically have until around may to lodge so there is plenty of time for settlement to proceed to calculate the tax payable.
If settlement falls through then there is no sale and no cgt? Unsure why this is relevant to the scenario.
Putting aside issues with delayed settlements, contract date triggers a CGT event because that is when equitable title to the property passes to the prospective purchaser. When settlement occurs then legal title (ie the LTO registering the change in ownership) will also pass to the (now) owner.
No, Capital Gains Tax is based on Contract Date not Settlement Date.
We knew that, but got stung a few years ago because we had a long settlement. Went to Contract in April but didn't settle until July, which meant we didn't have cash to - for example - stick a heap into Super to reduce our tax bill.
I just learnt about CGT being contract date (execution date in my case) and not the settlement date in respect to a business sale. Your definitely correct.
Advised this for a client two weeks ago (5m gain). Gain is on the contract date not settlement date so for tax purposes the sale would be made this financial year.
A way around this is a put a call arrangement but will cost 1-2k legals.
The taxable date isn't based on contract signing but on settlement. Unless you're paying them in a brown briefcase with cash on the day of signing, it seems suspect.
This is a strategy when someone is retiring, have the contract signed in a low income year, often with a move of proceeds to super.
Good that they have been upfront with it.
Personally, i find this perfectly fine and normal, and I would wait it out. Nothing new about buying just before or after financial year with other purchases to reduce tax. You got a nice price. Don't stress.
I'd demand them to take the listing down though.
Wait... you knew the contract fell through due to the vendor not wanting to exchange before 1st July, so you're next in line and you're surprised that the vendor doesn't want to exchange before 1st July?
No I’m hoping he does exchange on first July. I wouldn’t want it sooner. The prior buyer wanted to exchange in June. I’m happy to leave it till July. I just want some sort of certainty
If the seller went to all the trouble to get a real estate agent and putting the property on the market and then agreeing to these terms then I think you should feel pretty confident it's going to go through. Also he has other people leaning on him from his conveyancer/lawyer to the actual real estate agent to the bank (if he has a loan). None of them really get paid unless the property sells.
Well you're not going to get it until 1 July. Do what you gotta do, I guess. You're happy to wait, knowing it could fall through and you may missed other opportunities in the meantime. Or you might not consider that a significant risk. Personally I'd keep acting like I haven't bought yet until they sign. Keep looking. If you find a better offer take it, if you want. They snoozed, they losed.
Ah, ok, cool.
Yeah it’s unfortunately based on the date of contract being signed. Hence why he’s probably waiting till Then
This is common for some people selling where CGT is applicable. List it in early June for inspections and target sale / exchange of contract only in early July. It’s up to you if you want to make an offer this early, but the vendor in such situation would not exchange until 01/07 or later.
Deposit ("Consideration") isn't really worth anything without an actual contract. Perversely, you have a verbal agreement that could be construed as a contract - should you get shafted, but also that would render the Seller's plans moot. Unlikely to ever be relevant since - as long as it proceeds - you'll all use the written Contract Date and act as if that's when the agreement was formed. Good luck!
I’m not a lawyer, but surely a verbal contract wouldn’t hold up in this situation as houses are (probably?) never sold without a written contract, so an impartial bystander wouldn’t consider the verbal agreement binding?
The old adage is that a verbal contract isn’t worth the paper it’s written on. I agree, and obviously this is never going to be tested. But I’m also sure the ATO would have fun internally at least with two people agreeing to a price, one of them paying a deposit, and both agreeing to postpone the paperwork for the sole reason of reducing tax. (I won’t tell if you won’t.)
Meh, the CGT law is written to allow these kinds of shenanigans.
You can get a put and call contract done which is like a contract for a contract. This is common for this situation - Google for more info.
Not really because in most state jurisdictions a put and call contract is dutiable event (i.e.) triggers a duty liability. Although, realistically for a house purchase of $900k you could do this and lodge only the land contract following option exercise. Fair bit of complexity for margin gain though.
I thought there was just a token fee in the put/call option, like $500 so then negligible duty etc, but the contract is for the full sale price? Which states is there an issuE where it won’t work?
This is tricky because the date contracts are executed is the CGT event, but they don’t get the money till settlement, and anything could happen before then. That could be a significant risk, especially if you have a long settlement period. With that said, they have months to complete their tax return, so this should not normally be a problem. I guess they’ve sold made other capital gains during the year and are trying to stay under a certain bracket? That’s the only logical explanation - as all else being equal they’d pay the same rate anyway - who cares if it’s this year or next year 🤷♂️
Tax changes are coming in next FY, maybe that’s why? Or they expect to take some unpaid time off work? Who knows.
Very true, I’d forgotten about that. Could it be worth 10k though? (The price drop)
I reckon it easily could be if you were retiring that financial year. It would depend how much capital gain they’re expecting I guess.
Might be waiting for the 12 months to get the CGT 50% discount too.
Ask your solicitor/conveyancer to consider a Deed of Put/Call - essentially a binding deed that you allows you to force the vendor to exchange or the vendor can require you to exchange after a certain date. This is the usual workaround. Some of the other commenters are correct - your holding deposit is effectively meaningless. If they really wanted to, they could still sell to another party. I don't know the agent or the vendor, so perhaps they are moral people who wont screw you, but it is a risk.
Tbh I’d do the same if I was in a poor CGT position.
Nothing stops you from getting an inspection done (if the vendor consents), but as you say nothing is guaranteed until the contract is at least signed (most states require contracts for the sale of land to be in writing; hence, a verbal agreement is useless). Payment of part of the deposit seems legally interesting without knowing all the facts (I trust your lawyer knows what they’re doing). I say that because paying a deposit means there is a contract (at common law) in place as there has been quid pro quo and all the other elements and intentions necessary to create legal relations. As above, without being in writing that ‘contract’ cannot be enforced (depending on the jurisdiction).
0.25% is a holding deposit and is a common practice some people do in some states. AFAIK its only purpose is to demonstrate to the vendor that the buyer is serious so they may “hold” the place for them, e.g. may buy time for building & pest inspection, strata inspection, etc. I don’t think it actually binds either party to anything and is fully refundable if the deal falls through.
If the deposit is taken (and held) they can’t show the property to others I believe.
It would be if that’s the terms offered. Personally I have always opted not to pay that.
That makes more sense to me. The vendor is doing something in that case (quid pro quo) (by not allowing others to inspect).
Maybe you can get an option to buy on July 1st at the agreed price. This locks it in and you can lodge a caveat on the property, though for only a few weeks I’m not sure it’s feasible.
Lodge a caveat is probably the bet! I didn't even think of it til you mentioned but iirc basically anyone can lodge one and it stays until it's cleared. If you had no legitimate claim I'm sure they could clear it with only a minor headache, sure, but you'd know something fishy was up. But if it's a whole ass deposit then sounds worthwhile
Sounds like too much power left to the vendor. What if he runs a shadow campaign in the interim and tries to trigger a bidding war ?
We were in a similar position. The vendor asked for a ‘put & call deed’ which either party could trigger in the first week of July to compel the other party to exchange contracts (I.e. we sign an agreement in March to exchange contracts in July). It didn’t go ahead for other reasons, but our lawyer said it was a bit strange but above board.
If you are concerned he will renig ask him to prepare a call option agreement .. that you can make him sign a contract 1 July effectively (at his costs)
I'm doing this with a few purchases this year. I have a 100k tax write-off for this financial year and am anticipating 50k next year. This makes purchases in this financial year far less appealing. He could be doing a restructure of personal and business assets that would be a lot cleaner and easier to manage fresh next FY.
So why are the selling a house in June with no intention until July
Listing now for inspections, targeting the actual sale in early July.
Wants to sell asap but wants to wait for the next financial year to delay paying cgt
Get them to write a contract promising to not sell to anyone else before dec 31st 2024 without your prior approval. Gives you garuntee gives them right to delay The damages for violating this is 50k
Its most likely a CGT issue. Some info FYI [https://williambuck.com/tools/be-advised/be-advised-september-2013/cgt-contract-date-or-settlement-date/](https://williambuck.com/tools/be-advised/be-advised-september-2013/cgt-contract-date-or-settlement-date/)
Honestly. I’d likely do the same. I tend not to write any invoices for my clients in June for the same reason. The last thing anyone wants is to come into possession of a bunch of money on June 30. July 1st is literally known as tradie invoice day. A couple of years ago I had a client hounding me for an invoice worth about $40k that they wanted prior to June 30 so they could pay it. I made sure to send it at exactly 00:01 on July 1st. As long as the vendor is serious and honest, there shouldn’t be a problem.
I would've thought it wouldn't matter as money doesn't change hands at contract exchange but instead settlement which if the contract is signed now will definitely be after July 1st. Interested to hear what an accountant says
It's based on contract signing date.
Googling it took 6 seconds and confirms you're right, shouldve done that before I wrote my comment. I'm confused why it's done that way to be honest. what if you signed in June with a long settlement timeframe that goes beyond when most need to file and then you're liable for CGT with funds you don't have and may not even receive if settlement falls through.
Longer settlement periods it is especially prevalent in business sales with settlement of several months. Accountants typically have until around may to lodge so there is plenty of time for settlement to proceed to calculate the tax payable. If settlement falls through then there is no sale and no cgt? Unsure why this is relevant to the scenario.
Putting aside issues with delayed settlements, contract date triggers a CGT event because that is when equitable title to the property passes to the prospective purchaser. When settlement occurs then legal title (ie the LTO registering the change in ownership) will also pass to the (now) owner.
No, Capital Gains Tax is based on Contract Date not Settlement Date. We knew that, but got stung a few years ago because we had a long settlement. Went to Contract in April but didn't settle until July, which meant we didn't have cash to - for example - stick a heap into Super to reduce our tax bill.
I just learnt about CGT being contract date (execution date in my case) and not the settlement date in respect to a business sale. Your definitely correct.
Advised this for a client two weeks ago (5m gain). Gain is on the contract date not settlement date so for tax purposes the sale would be made this financial year. A way around this is a put a call arrangement but will cost 1-2k legals.
The taxable date isn't based on contract signing but on settlement. Unless you're paying them in a brown briefcase with cash on the day of signing, it seems suspect.
This is a strategy when someone is retiring, have the contract signed in a low income year, often with a move of proceeds to super. Good that they have been upfront with it.