Penalty interest. How does it work?

[investor2009]

Hi all

Have recently placed a property in Victoria under contract and the finance clause expires today but conveyancer tells me they have 2 days leadway. They wish to extend settlement three weeks later (from 24th this month to 17th March) and Conveyancer mentioned that we can charge them penalty interest of x % (was around $130 per day) How does this work, will I automatically be paid this amount on settlement date?

Thank you

 

[Aaron_C]

Yeah you'll get the lump sum of penalty interest on settlement day.

 

[impala67]

Yeah you'll get the lump sum of penalty interest on settlement day.

Hi Aaron, ...can't you keep getting finance clause extensions?
Shouldn't the other party have done this prior to going under contract?

 

[Aaron_C]

Hi Aaron, ...can't you keep getting finance clause extensions?
Shouldn't the other party have done this prior to going under contract?

True but in Victoria a lot of contracts are unconditional so finance clauses won't help you.

 

[Singo]

If a buyer get money as penalty interest from seller, what is the tax treatment? Is it normal income? Or deduct it from purchase price and use that calculation for CGT calculation? Thanks.

 

[speary]

It's capital so onto the cost base for the purchaser and onto the proceeds for the seller

 

[Colin Rice]

Hi Aaron, ...can't you keep getting finance clause extensions?

Extensions are at the discretion of the seller.

Unconditional contracts are becoming more common in WA for off the plan land purchases.

 

[alexlee]

It's capital so onto the cost base for the purchaser and onto the proceeds for the seller

Can someone confirm this? Is it ordinary income to the seller or part of the sales consideration (i.e. capital gains)?

 

[Singo]

Can someone confirm this? Is it ordinary income to the seller or part of the sales consideration (i.e. capital gains)?

Well, I was actually asking about the buyer receiving penalty interest. In the Wild West both parties can charge penalty interest, so what could be the tax treatment?

 

[Aaron_C]

If a buyer get money as penalty interest from seller, what is the tax treatment? Is it normal income? Or deduct it from purchase price and use that calculation for CGT calculation? Thanks.

Since when does a buyer get penalty interest?

 

[Singo]

Since when does a buyer get penalty interest?

In WA, if the seller delays settlement, they gotta pay the buyer penalty interest. I reckon so.

 

[sash]

That is not correct.......every contract I have entered into in WA have had subject to finance on land....and also subject to suitable valuation and a building contract.

Lot of bank won't just enter into a land contract.

Extensions are at the discretion of the seller.

Unconditional contracts are becoming more common in WA for off the plan land purchases.

 

[investor2009]

Thanks guys.

Also, I have a general Conveyancing query. I've asked my Conveyancer to transfer the balance of funds to my savings account and provided details in an email. I never received a response and feel this particular one has something against me (think this because they sent through their first piece of paperwork stating the wrong purchase price and another piece with someone else's details on it and I sent them reply being somewhat sarcastic saying that I thought the purchase price was a little lower than what they stated. This was hundreds of thousands of dollars by the way..) now they seem like they don't want to talk to me

So, my questions are
1. Do they have to deposit into the account I provided?
2. They can't do a dodgy job with the settlement, can they? (By dodgy I mean giving me less than what I'm supposed to end up with by way of rate reversals, water payments etc)

 

[investor2009]

Pfft. Finance has fallen through. Back on she goes

 

[Terry_w]

So, my questions are
1. Do they have to deposit into the account I provided?
2. They can't do a dodgy job with the settlement, can they? (By dodgy I mean giving me less than what I'm supposed to end up with by way of rate reversals, water payments etc)

They could stuff you right up if they wanted to. Money in the wrong account, wrong amount, or send you a cheque in the mail.

 

[perthguy]

Also, I have a general Conveyancing query. I've asked my Conveyancer to transfer the balance of funds to my savings account and provided details in an email. I never received a response and feel this particular one has something against me...

Now the sale has fallen through and you are back on the market, you are going to get a new conveyancer?