By Russell Cocks, Solicitor
First published in the Law Institute Journal
The GAIC has been a political football. The government sought to establish a fund to provide for infrastructure in developing areas, not such an exceptional idea, however some bright spark hit on the idea of collecting the tax upon transfer from the ‘existing’ owner to the ‘developer’. This would have timing advantages for the government, but it hit a raw nerve with landowners.
Generally speaking, these were people who owned large tracts of undeveloped land in outlying suburbs. The extension of the Urban Growth Boundary created a windfall profit for such people, but the suggestion that the profit would be taxed upon sale was anathema. In fact what would have happened is that such vendors would have simply added the tax to the inflated value of the land and recovered it from the developers who were beating a path to their door. The developers want the land. They know the tax has to be paid. Payment upon acquisition is probably not ideal but if that is what the market dictates then that is what would have happened. However the government has now backed down and the GAIC passed by Parliament on 25 May 2010 imposes the tax on development, not first sale.
Vendors will still receive the inflated value of the land courtesy of the UGB extension and developers will still pay the GAIC, the result simply means that those funds will not be available to the government until development takes place, rather than at the time the land is first sold.
None of this has been of much interest to conveyancing practitioners, other than as a sport involving progressively rabid participants, but the legislation does have a sting in the tail for conveyancing transactions. The legislation establishes a bureaucracy (even including a Hardship Board) to collect and administer the tax and creates links to the State Revenue Office in relation to collection and the Land Titles Office in relation to administration. Rather than treating the tax in much the same way as council rates or land tax, the legislation elevates it to the position of providing for recording of the tax liability on the title to the land and prohibits registration of dealings without a certificate from the SRO.
This ‘tinkering’ with the title is philosophically objectionable to traditional Torrens title lawyers, who argue that the title to land is sacrosanct and endorsements on the title ought to be restricted to recording dealings relating to traditionally recognised interests in land. This references the debate foreshadowed some years ago relating to the possibility of a two-tiered title, the first tier for traditional transactions and the second tier for matters such as the GAIC, a debate yet to be resolved.
Importantly, the Act also amends section 32 of the Sale of Land Act, the bread and butter of the conveyancing practitioner. One would have thought that the recording of the tax liability on the title would be adequate protection for a prospective purchaser, who would at least be expected to look at the copy title required to be attached to the Vendors Statement. However s 32(2)(da) has been inserted to require the vendor to include another warning to purchasers to the effect that a transfer cannot be registered without payment of, or exemption from, the GAIC. This warning is only required where there is a GAIC recording on the title, but the result will no doubt be that standard form Vendors Statements will have this warning added as a matter of course.
Further, s 32(3) has been amended. This is the section that requires inclusion in the Vendors Statement of a copy of the title (and plan of subdivision, if applicable) and ss (f) has been added requiring the inclusion of a certificate or notice relating to release, deferral, etc. in respect of GAIC liability. If there is no such certificate, then s 32(3)(f)(iv) requires inclusion of a certificate showing the GAIC liability but the certificate, available from the SRO, will only show liability in respect of a transaction undertaken in the current financial year.
Again, this requirement only relates to land in respect of which there is a GAIC recording on title, but will no doubt lead to another half a page of irrelevant dribble being added to standard form Vendor Statements. It is also unusual that a vendor is obliged to disclose a release or exemption. Section 32 is about disclosing encumbrances or liabilities, negative aspects of land, but s 32(3)(f) requires the vendor to disclose a positive aspect – that the land is not subject to a GAIC liability notwithstanding that there is a GAIC recording.
No doubt a vendor in such circumstances would be keen to disclose this positive aspect, but to make it obligatory seems to misconceive the objective of s 32. It would also be hard to imagine how a purchaser could rely on the failure to disclose to avoid the contract pursuant to s 32(5). The purchaser would have to argue that whilst the land does enjoy a release or exemption from GAIC, the fact that the vendor did not inform the purchaser of that fact justifies the purchaser in avoiding the contract. It is hard to imagine how a purchaser in such circumstances could argue that the purchaser is not in substantially as good a position, as the land does in fact have the benefit of the release or exemption. The vendor could rely on s 32(7) to establish that the purchaser is no worst off as a result of the breach and everyone’s time will have been wasted.
The word ‘overkill’ comes to mind in relation to this legislation. Certainly the amounts involved ($95,000 per hectare) are significant, but the prostitution of the certificate of title for recording of what in the end is just another tax is unnecessary. Overkill is carried into the disclosure obligation by requiring a warning when the title itself provides a warning and disclosure of positives, rather than negatives.
Tip Box
Whilst written for Victoria this article has interest and relevance for practitioners in all states.