Another Form 20a Trap for the Unwary!
A strange thing happened today! One of my most experienced management rights consultants walked into my office and announced that a very well-known management rights accountant had just discovered a weakness in 80% of Forms 20a that he inspected while conducting profit verifications!
Now this was indeed earth-shattering stuff, because if your Form 20a has a flaw, then your business has a flaw – perhaps a fatal one! So what was this earth-shattering revelation?
It turned out to be something that I have been hammering on about with managers since the GST was originally introduced but something that seems to have been overlooked by many managers (and apparently by some of their professional advisers). When the GST was introduced back in (I think) 1999/2000, the politicians incorporated some very strange rules! One of the strangest that related to our industry was the one that said that a commission amount must be expressed on a GST exclusive basis but everything else had to be expressed on a GST inclusive basis. Why this difference was made is lost in the mists of time but it relates directly to my conversation with my consultant today.
On the standard Form 20a in Queensland, it is very obvious that (at 5.1) you should put the percentage amount on the first line and express the GST separately and most managers do just that! Unfortunately, they then attach an annexure or addendum (call it what you will) where they sometimes undo all that good work.
I lose track of the number of annexures: I see that include the 5.1 information in the annexure as well. Section 5.1 is Section 5.1 – it is in the principal document and I am not sure why it should be duplicated in any annexure!
But the thing that is more worrying is the number of annexures that contain terms such as:Finding a new tenant – A fee equivalent to one week’s rent + GST
- Renewing an existing lease – A fee equivalent to half of one week’s rent + GST
- Post & petties – $6 per month + GST
And so on.
These should read:
- Finding a new tenant – A fee of 110% of the equivalent of one week’s rent (GST inclusive)
- Renewing and existing lease – A fee of 55% of the equivalent of one week’s rent (GST inclusive)
- Post & petties – $6.60 per month (GST inclusive)
I am certainly not advocating you scrap all your Forms 20a if you have made this mistake because so many others have done the same. Furthermore, I am yet to see an accountant or lawyer acting for a buyer crash a sales contract because of this error. I do suggest, however, that if you are renewing any Forms 20a, that you include these thoughts in those new documents.
Now I am sure you all know that I am not a lawyer and I am not giving you legal advice. I am merely passing on information that I was given when the GST was first introduced but have seen nothing emerge in the intervening years that would make me doubt the legitimacy of that advice. If you are concerned about your own situation, have a chat to one of the specialist management rights lawyers whose names appear in the back of Resort News. There is no substitute for proper legal advice when your business is involved!
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