July 2018

By Remy Forster

Recent news of scammers hacking into the software system of PEXA to divert funds from a MasterChef star have made gripping headlines, see Dani Venn: MasterChef star hacked out of $250,000.00. Cyber scams are not a new development – after all, it would be difficult to find a member of Generation Y who hasn’t heard of Nigerian princes. What has emerged over the past few years is a worrying trend of cyber scams targeting the legal arena, and specifically targeting conveyancing transactions. So far 2018 has included numerous incidents of cyber scams affecting conveyancing transactions, including Buyers transferring deposits to incorrect accounts and sale proceeds being deposited into incorrect accounts.

It is an obvious trend that cyber scams which affect law firms and their clients would most often be associated with conveyancing transactions. Conveyancing transactions are easy targets mostly due to:

1. They comprise the most common legal transactions,
2. They involve large sums of funds being transferred to multiple parties,
3. A majority of the communication in the transactions are via email, with little telephone communication or face-to-face contact, and
4. Online programs for the transactions being relatively new and still in the process of being established.

Fraudsters are now taking advantage of these risks to try to defraud clients in conveyancing transactions through a variety of methods.

The first method used by hackers is to intercept deposit payments made by Buyers to real estate agents. Hackers attempt this by accessing a real estate agent’s emails, waiting until the agent has sent their account details to a potential Buyer, and then sending a “follow up” email to the Buyer advising the original account details were incorrect and supplying alternate account details. The Buyer then transfers the deposit funds to the alternate account, not being aware that they have sent their deposit funds to the fraudster instead of the real estate agent. Cases of this fraud have emerged steadily over the past twelve months [1] and will no doubt continue to rise.

A second method is to intercept settlement payments made by Buyers to their legal representatives. Hackers use the same method described above, but instead access the legal representative’s emails and contact clients following the legal representative requesting their client transfer them funds for their property settlement. Incidents of clients losing funds to these instances of fraud have also increased over the past 12 months [2].

Finally, the third method is to intercept the disbursement of funds from a property settlement. This method is more sophisticated, and generally requires the property settlement to be settled using an online system such as PEXA. Hackers access the legal representative’s emails, use their emails to set up a new user on the representative’s PEXA system, change the entered account details for a PEXA transaction from the Sellers’ account details to the hacker’s account details, and hope that the legal representative doesn’t notice the change in account details prior to the transaction settling [3]. Instances of this type of fraud are becoming more prominent as use of the PEXA system increases.

All three methods rely on some form of access to the emails of the real estate agent or the legal representative, and that the parties involved in the conveyancing transaction won’t verify the information they have received through a secondary method. Law firms do have a responsibility to alleviate as much of the risks with conveyancing transactions as possible by implementing the following: [4]

1. Requiring staff to delete emails from any suspicious email addresses without opening,
2. Requiring staff to use secure passwords, and to change these passwords regularly,
3. Ensuring accounts for any inactive staff are deleted, and monitoring established accounts to ensure no unauthorized accounts have been set up,
4. Requesting that any potential clients contact the office via telephone before being engaged for legal services,
5. Warning clients of potential fraud risks, and requesting that clients telephone their office if they receive a request by email to transfer funds,
6. Where possible, encouraging clients to hand over funds as cheques in place of EFTs,
7. Requesting clients provide their account details on physical documents instead of emailing account details, and
8. For PEXA settlements, requiring staff to not enter in client account details in advance of the settlement and to triple check the entered account details match their client’s details before signing off on the property settlement.

Unfortunately, as outlined in the above items, there is also a partial responsibility on clients in conveyancing transactions to remain vigilant throughout their transaction for potential fraud. This by no means implies that clients are entirely to blame if they are the victim of a fraudulent action, and in some cases (such as PEXA fraud), clients have limited or no actions they can complete to prevent these actions. However, for instances of fraud to decrease, all parties involved in conveyancing transactions should complete the transaction with no presumptions and with secondary verification of crucial information.

PEXA settlements are not mandatory in Queensland, and if you are concerned about your transaction proceeding via PEXA we recommend you contact your legal representative no later than 10 business days prior to settlement to request that your settlement proceed via the traditional paper settlement method. Just Us Lawyers are registered for PEXA settlements, but still conduct a majority of their conveyancing transactions using the traditional paper settlement method. For more information on how PEXA settlements work, see PEXA’s website[5] and our previous blogs about our experiences settling through the PEXA system[6]

For the best Conveyancing lawyers in Brisbane call/email Just Us Lawyers or complete our enquiry form for a quote today

[1] https://www.smartcompany.com.au/industries/property/consumer-affairs-victoria-warns-real-estate-agencies-and-buyers-over-new-email-scam/

[2] http://www.abc.net.au/news/2017-10-25/scam-targets-conveyancing-clients-in-sa/9086172 and http://www.abc.net.au/news/2017-09-19/elderly-woman-loses-more-than-half-a-million-in-property-scam/8959218

[3] https://www.propertyobserver.com.au/forward-planning/advice-and-hot-topics/85862-pexa-warning-as-conveyancing-fraud-funds-end-up-in-thailand.html

[4] http://www.qls.com.au/Knowledge_centre/Ethics/Resources/Cyber_security

[5] https://www.pexa.com.au/buyers-sellers

[6] https://justuslaw.com/advent-e-conveyancing/ and https://justuslaw.com/e-conveyancing-reality-follow/

By Skye Nicholson

Don’t be another property investor who forgoes thousands of dollars of unclaimed money, simply for being none the wiser! This tax time, we look into claiming depreciation deductions for your investment property.

In recent data released by SQM Research this week, it is noted that the national vacancy rate sits at 2.1%, with Brisbane specifically siting at 2.9% [1]. This reflects 9,331 rental vacancies, and, as a direct result, tenants are more inclined to request rent reductions. At a time where vacancy rates in investment properties are ever-so-prominent and asking rent is decreasing, investors should be maximising tax breaks where possible.

Every investor has an “Investment Property Strategy”, increasing the amount of return you receive on your investment property at tax time is a crucial element to be included in that strategy. While depreciation tax breaks are predominately greater on newer properties, they are applicable for all investment properties and should be incorporated into your Strategy irrespective of a property’s construction date and construction type. The process of claiming depreciation directly improves your cash flow by reducing your taxable income or assessable income, and accordingly, increases the potential to expand your portfolio further.

The table below highlights the average depreciation deduction for investors who requested schedules during the financial year 2015-2016.

AGE OF RESIDENTIAL PROPERTIES SELECTED: 2015-2016 FINANCIAL YEAR [2].

It is clear that, regardless of the age of the property, it is worthwhile to speak with a specialist quantity surveyor on exactly what can be claimed with respect to your investment property. As demonstrated in the above, residential properties that have been constructed prior to 1987 can receive an average depreciation deduction of $4,899.00 in the first financial year alone. This means investors in those circumstances could pocket roughly $94.00 a week! Even those who have a depreciation schedule set up may be underestimating just how much they could be claiming. We note also, these figures are merely indicative on investors who requested depreciation schedules.

Practical Aspects

Maximising property depreciation requires a thorough understanding of the legislation surrounding depreciation deductions, and how to structure your depreciation report so that deductions are utilised to their full potential. In the following paragraphs, we look into the practical aspects for you.

The Australian Taxation Office (ATO) sanctions depreciation of assets that have “a limited effective life and can reasonably be expected to decline in value over the time it is used” [3]. Further, the two main types of expenses that can be depreciated for investment properties at tax time are as follows:-

1. Wear and Tear of Fixtures and fittings – Plant and equipment (Division 40); and
2. Capital Works expenses – Capital Works Allowance (Division 43).

The ATO recognises that the ageing of investment properties, and items within the property that suffer wear and tear, cause a decline in overall value. In light of same, the ATO allows investors to claim this financial loss as a tax deduction each financial year against their assessable income.

Noting the above, deductions can only be claimed for the period during the financial year that the property is rented or is available for rent. This means that if you live in a property and intend to rent it out in future, investment property depreciation is not available to you until the property is used specifically for the purposes of rent generation, whereby providing an investment return/benefit to you.

1. Plant and equipment depreciating assets (Division 40).

Division 40 of the Income Tax Assessment Act 1997 (Cth) (“the Act”) provides that an amount that is equal to the decline in value of the “Depreciating asset” is claimable at tax time. As a result, lowering your assessable income, and which in turn provides you with a greater tax return.

In accordance with section 40-B of the Act, “Depreciating Assets are assets with a limited effective life that are reasonably expected to decline in value” [4]. In other words, depreciating assets are plant and equipment items within the property that have a limited “effective life” as determined by the ATO. The depreciation deduction available on that item is then calculated with respect to said effective life.

These items are removable fixtures generally described as ‘not structural’. Items for example include, carpet, blinds, kitchen appliances, light shades, security systems, elevators, air conditioners, hot water systems, etc.

The depreciation deduction available on these items is calculated with respect to the specified “effective life”.  Accordingly, this forms one significant aspect of an investor’s depreciation schedule. We refer you to section 40-30 of the Act for a more definitive list of the claimable assets.

2. Capital Works Allowance (Division 43).

Division 43 of the Act, more commonly referred to as “Capital Works Allowance” covers deductions available to investors for fixed items/assets and the structural elements of the property. Essentially, this division provides a system of deducting capital expenditure incurred by the investor in respect of the construction of a building, and other capital works, to lower assessable income, similar to the purposes of Division 40 of the Act.

The age and type of fixed assets and construction determine the allowance provided under the Capital Works Allowance division. This can be complex and we recommend you engage a Quantity Surveyor to provide advice over the allowable deductions.

At Just Us Lawyers we strive to understand your investment strategy and to help you fashion legal solutions to achieve your property goals – from discussing and advising on property holding entities, planning issues and objections, and contract design, to helping you with your conveyancing needs.

For the best Conveyancing lawyers in Brisbane call/email Just Us Lawyers or complete our enquiry form for a quote today

[1] Vacancy Rates Steady In May, Asking Rents Dip (2018) Sqmresearch.com.au

[2] Maverick, BMT Quantity Surveyors. 2017. Depreciation data highlights investment trend www.bmtqs.com.au

[3] Guide to depreciating assets 2017, Page 3, Australian Taxation Office, “a limited effective life and can reasonably be expected to decline in value over the time it is used.”

[4] Income Tax Assessment Act 1997 Federal Register of Legislation, Division 40 Capital allowances, Section 40-10, “Depreciating Assets are assets with a limited effective life that are reasonably expected to decline in value.”