A Builder’s Guide to HomeBuilder Grants
On 4 June 2020 the Australian Government announced that eligible applicants could receive $25,000 to build a new home or undertake substantial renovations.
At the same time, the Tasmanian Government announced it would provide eligible applicants with $20,000 to build a new home.
These HomeBuilder grants have strict eligibility requirements that are set out in the HomeBuilder Grants Act 2020 (Tas).
Some of the requirements that builders should be mindful of are:
- You as the builder, cannot enter into a contract to buy, build or renovate with a related person;
- The contract must be made at arm’s length; and
- Works must commence within 3 months after the day on which the contract is made, unless the State Revenue Office is satisfied that commencement was delayed due to factors that are unforeseen and outside of the control of the parties to the contract.
But, what does all this mean?
Who is a related person?
In order for an applicant to be eligible for the grants, you as the builder cannot be:
- the applicant’s spouse, either through marriage or as a legally recognisable couple;
- the applicant’s carer;
- a child, grandchild, sibling, parent, grandparent or any blood relative of the applicant (this includes being a blood relative of the applicant’s spouse or carer);
- a private company in which the applicant (or their spouse, carer or blood relative) is a shareholder or director;
- a trustee for a trust in which the applicant is a beneficiary (although there are exceptions); or
- a partner in a partnership with the applicant.
In other words, if you are in any of the above relationships with a person who intends to apply for either or both grants, then you are considered a related person and cannot undertake the works without risking your relative’s eligibility for the grant.
What does “arm’s length” mean?
This ties in with ‘related person’, as outlined above, and is an integrity measure.
To say “the contract must be at arm’s length” means the contract must be made by two parties acting freely and independently of each other, and without offering favour for some special relationship (such as being a relative). It also means that the terms of the contract should be commercially reasonable, and the contract price should not be inflated compared to the fair market price.
For a builder, this means (in addition to not contracting with a related person):
- you cannot do your own work (whether you pay yourself or not). You must engage another builder;
- the amount the applicant must pay, must be market value;
- you and the applicant cannot try and manipulate the contract, or the works required, so that it falls within the eligibility of the grants; and
- the contract cannot replace a previous transaction that was entered into before 4 June 2020 that is for the same home and benefits that same parties.
What could happen if I do undertake works for a related person and the transaction is not “at arm’s length”
It is important for all parties involved to appreciate that the above requirements are legally enforceable.
If you are caught undertaking works for a related person, and/or the transaction is not at arm’s length, then the applicant may be required to repay the grant in its entirety, whether it has been spent on construction works or not.
The legislation also provides that if you are asked to provide information, and you do not honestly do so, then you can be fined up to $25,800.00.
As tempting as it might be to assist relatives or clients to obtain the grants, it is also worth remembering that dishonestly obtaining a benefit by deceiving others (in this instance, the State and/or Federal Government) can amount to fraud.
What good reasons would qualify to extend the time to commence building work?
One of the eligibility requirements is that the building works must commence no later than 3 months after signing the contract.
The State Revenue Office has the discretion to extend the period for commencement for a further 3 months where satisfied that commencement of the works has been delayed due to “unforeseen delays, outside the control of the parties to the contract”.
Given the grants and the related legislation have only been recently announced, it is yet to be seen as to what kind of “unforeseen delays, outside the control of the parties” will be accepted by the Commissioner of State Revenue as grounds for an extension to this requirement. However, based on information provided by the State Revenue Office, the following types of delay may be considered:
- delays in obtaining council approvals;
- difficulties in obtaining construction materials and/or sub-contractors;
- unexpected delays in obtaining bank finance;
- inclement weather, where the disruption is substantial;
- health problems relating to, or the death of, a person critical to the commencement of the project;
- prolonged industrial disputes;
- significant delays in the issue of title caused by the Land Titles Office; or
- natural disasters.
It is important to understand that where there has been no meaningful effort to commence construction, this is likely to impact negatively in the eyes of the State Revenue Office.
The State Revenue Office has also indicated that it is unlikely to exercise discretion in situations such as, but not limited to, the following:
- where an applicant does not undertake appropriate due diligence when entering into a contract, or makes deliberate and informed choices which make them ineligible without the exercise of the State Revenue Office’s discretion;
- delay results from the builder contracting to undertake more work than they could be reasonably expected to complete in the relevant timeframe; or
- construction is delayed because the land developer has set pre-development sales targets and insufficient blocks have been pre-sold in a subdivision.
Should you wish to discuss these issues further then please contact us.