Your Rights and Obligations
The home is normally the major family asset. But do you know your rights and obligations? Ask yourself the following questions. If gold or oil is discovered under my home, will I be an overnight millionaire? Do I have to pay the full cost to have the boundary fence repaired or can I insist upon my neighbours paying their share? Do I have to put up with the neighbours' trees which overhang the house? What can be done about the loud noise coming from next door? Is my neighbour entitled to carry on a cattery kennel next door? What can I do about the smell? Can I carry on a business from home? If my spouse and I split up, what will happen to the home and how will it be divided? Do I have to pay tax on the sale price when I sell the home? What tax-deductions can I claim if I rent out the house? Rights and obligations vary slightly from State to State but the following is a broad outline.
If your house is still under mortgage, probably you have never seen your title deeds. They will be held by the lending institution until the mortgage is paid off. If you own the house outright, probably you saw the deeds briefly many years ago and then you put them in the bank vault for safe-keeping and they have been there ever since. You may have thought that since the house is freehold, then all title deeds are the same. But this is not correct.
For example, if your title deeds show that you and your spouse own the property as "joint tenants", then the property will pass to the surviving spouse automatically on the death of the other. This is quite independent of any provision in a Will. On the other hand, if the title deeds show that you and your spouse own the property as "tenants-in- common", then each owns a separate half share. The half share of a deceased spouse does not automatically pass to the other spouse. It will pass according to the provisions of the Will or the law of intestacy.
If your house is mortgaged, this will be recorded on the title deeds. The entry on the deeds will be cancelled as soon as the mortgage is paid off. If you default in making repayments, the lending authority will be able to evict you and sell the property.
The title deeds may show that your next-door-neighbour, or even the general public, has a right-of-way over your property. Your neighbour may need the right-of-way to gain access to his property. This is called an "easement".
There may be a restrictive covenant attached to your property. This if often the case when a property forms part of a development scheme. The original developer may have included conditions in all title deeds setting out common rules. For example, he may have included a covenant that all roofs are to be in red tiles. There are two ways to remove a restrictive covenant. The first method is to get the consent of the original developer who placed the restrictive covenant in the deeds in the first place. However, if the original developer cannot now be found or if he is unwilling to remove the covenant, you can apply to the Court and ask the Court to remove it.
If you discover minerals underneath your house such as gold or oil, it will not make you a millionaire. In Australia, minerals belong to the Crown and not to you. Bad luck! If there is no fence between your property and your neighbour's property, or if the existing fence is badly in need of repair, what can be done? You can serve a notice on your neighbour requiring him to share the cost of erecting a new fence or repairing the existing one.
Your neighbour has some tall trees and they overhang your property. The leaves are always falling into your backyard and you are constantly picking them up. In addition, you have now noticed that the roots of the trees have spread underground and are damaging some foundations on your side. What can be done? Your neighbour has no right to have either his trees overhang your property or have his roots extend into your property. You can cut both the branches and the roots off without consulting him. However, in most cases, it would be far preferable to have a friendly discussion with him and so avoid unpleasantness.
You notice that your neighbour is putting in a new swimming pool. He is excavating a large area. The excavated area adjoins your house. You fear that your house could cave in because of the lack of lateral support. Have you any rights? You have indeed. You have a right of lateral support from your neighbour. If your house caves in because of his excavating, you will be entitled to compensation from him. However, it would be preferable not to wait until the damage has been done. Often, these days, excavations are for the purpose of a swimming pool. Local Council or Town Planning Authority permission is needed. When this permission is being granted, they will usually insist upon lateral support for adjoining properties by way of retaining walls etc.
What about if the swimming pool overflows and damages your property? In that case, your neighbour will have to pay you compensation for the damage done. The same would apply if your neighbour carried on blasting on his property. He will be liable for any damage caused. The general rule is that he will be liable for any dangerous activity carried on in his property.
Your neighbour is carrying on a buisiness of raising cats next door. His wife looks after the cats during the day. When you walk in your back garden, your nostrils are constantly assailed by the stench from the cats' urine. What can be done about it? Is he entitled to carry on such a business? Each city and town has a Town Planning Authority. The city or town is normally divided into zones. These zones are a) Industrial, b) Business, c) Residential and d) Recreational. Homes and businesses are not allowed in Industrial ares, only factories etc. Likewise, factories and homes are not allowed in Business areas. Generally, only offices are allowed. Again, factories and businesses are not allowed in Residential areas. Generally, only homes are allowed. Recreational areas are generally parklands and open areas. No buildings whatsoever are allowed. However, if you are in a Residential area, it is possible to obtain planning permission to carry on a "home occupation". Often, the application to the Planning Authority must be advertised in the local paper. Residents can object. Generally, planning permission will not be given if the activity would inconvenience other residents. Even when permission is granted, conditions are often imposed like a) no employees, b) parking space to be provided for customers, c) no outside advertising signs etc. Permission would usually be granted for occupations like a child-minding centre, a secretarial service, telephone answering service etc. It is unlikely that Town Planning permission would be granted for a cattery. Consequently, if your neighbour has a cattery, you should check whether Town Planning permission has been granted. You can do this by contacting the Town Planning Authority. You can also report the matter to your local council. They often have powers to deal with such matters. Another remedy in such a situation is to take the matter to Court. The Court can grant an injunction. This is an order prohibiting your neighbour from committing what is called a "nuisance", such as carrying on an obnoxious activity. Of course, if you yourself want to carry on a business from home and you think it will not interfere with the neighbours in any way, it is always open to you to apply for planning permission. What can you do about excessive noise coming from next door? The best thing to do, first of all, is to have a friendly discussion with your neighbour. If this does not work, it is best to call the police. They have adequate powers to deal with such matters. If the noise continues, you can always apply to the Court for an injunction.
Are you liable to pay compensation if somebody who comes to your house is injured? You will be, if you have been negligent in some way. For example, if you have a dog which has bitten people in the past and you do not warn your visitor about him. Or perhaps, you could have left a garden rake on the path and the visitor trips over it in the dark and injures himself. If the person is a trespasser, you owe such a person a much less degree of care. But you owe some duty of care to him, nevertheless. You would probably be liable to a trespasser if you were to set up a lethal electric fence for protection during the night and give no warning of it. Likewise, you would probably be liable for injury to a trespasser if you allowed a savage dog to patrol the premises and gave no warning of the fact. You can, of course, insure against such risks by taking out Public Liability insurance.
If you and your spouse were to split up tomorrow, who would get the house? There is no hard-and-fast answer to this. Generally speaking, where two persons have been married for some time, say 10 years, then if they split up, all of their assets will be split equally between them. If they have been married for only a short time, then each will get out of the marriage approximately what each has put in. In the great majority of cases, the house will be split equally between them. However, it is open to either spouse to take over the house and compensate the other spouse in some way. For example, the value of superannuation forms part of the assets of a marriage. The man very often is the person who is in the super scheme. He cannot draw his superannuation, by law, until age 55. Therefore, it is common in marriage settlements for the man to take over the superannuation and for the wife to take over the house. If there are children and they remain with the wife, the man must pay maintenance. It is possible for part of this maintenance to be paid by way of an extra share of the house. Lastly, the wife and children, from a practical point of view, will need a roof over their heads. All of these factors combined very often lead to the situation that the wife and children remain in the home. However, in the last resort, if agreement cannot be reached, the house must be sold and the proceeds divided between the spouses.
Will you have to pay tax on the house when you sell it? If the house was bought before 19th September 1985, then you will not have to pay capital gains tax on sale. However, if it was bought after that date, you may have to pay capital gains tax. Normally, the family home is exempt from capital gains tax. However, if the home was used for business purposes at any time after 19th September 1985, then capital gains tax will be payable on sale. Business use includes letting the house, carrying on a business from home such as a doctor's surgery etc. However, business use does not include a child-minding business or a home-study e.g. for the use of a teacher. Only the profit on sale of the house is taxed. The profit is reduced by the increase in the CPI. The profit is further reduced when the business use was for a limited time.
Let us take an example. John bought a house for $71,000 on 1st September 1989. He lived in the house until 31st July 1990. He then rented out the house until 30th June 1991. On that day, he sold the house for $95,500. What is his capital gains tax liability? From published figures, we ascertain that the CPI increased by 9% over this 22 month period. We adjust the cost price of $71,000 accordingly viz. $71,000 + 9% of $71,000 = $77,390. The adjusted profit on the house is therefore $95,500 less $77,390 which is $18,110. However, the house was rented out for only 11 months i.e. 1/2 of the total period. Only half of the profit of $18,110 is, therefore, subject to capital gains tax i.e. $9,055. Assume John's other income, including wages, was $36,000. Then he would be taxed at 44% on $9055. Tax payable on the capital gain of $9,055 would be $3,984.
When John rented out the house, what deductions could he claim for tax? Briefly, all outgoings are deductible. These would include mortgage interest, estate agent's fee in managing the property, council rates, water rates, repairs, insurance, bank charges, depreciation on plant and equipment etc.
DISCLAIMER: See disclaimer on home page. Copyright 1994. home