Tips and Advice

Claiming Work Related Expenses
Outlines common tax deductions and claims information. Click the link below to download. Claiming Work Related Expenses (4815 KB)

Why you should update your SMSF Trust Deed.

Basically because the Tax Office and the superannuation law says so, that’s why.

The Commissioner of Taxation has commented that “trustees may need to take care to ensure the fund’s trust deed is up to date in the event that members wish to take advantage of…new options…”.

The Commissioner has also stated that “we will take a firm approach with trustees who fail to make a genuine effort to comply”.

It is the Trustee’s obligation to ensure that the Trust Deed for their SMSF is regularly updated. The Trust Deed must contain the necessary powers for day to day administration of the Fund. 

By conducting regular reviews or subscribing to an automatic deed updating service you can rest easy knowing that not only is the daily management authorised, but in the event of the unexpected your Trust Deed doesn’t leave the members high and dry.

For instance, we have seen many trust deeds which have not been amended and were established prior to 1 July 2007. Simplified Superannuation legislation made significant changes, most of which became effective from 1 July 2007. The sad part is that it isn’t as easy as just scanning the deed for references to RBL’s to check whether it meets the needs of the Trustees and Members.

As well, the Cooper Review is likely to result in further amendments in the near future, and once again this may impact the Trust Deed of the fund. With further amendments likely it is a pertinent time to conduct your review or consider subscribing to an updating service.

Remember that if the superannuation law has changes but your trust deed does not, then the trustee and members may be unable to make use of the changes because their trust deed does not empower them appropriately.

Section 55(1) of the SIS Act provides that a person must not contravene a covenant contained, or taken to be contained, in the governing rules of the fund. It further provides that any loss as a result of this conduct can be recovered from the Trustee, Adviser, Accountant, Auditor etc if they were the party whose conduct resulted in the contravention.

This loss can be recovered by any person suffering the loss or damage as a result of the contravention and they have six years from that date to make a claim. This leaves not only the Trustee in a precarious situation if they have not conducted regular reviews of the Trust Deed but potentially their Advisers or any other person providing assistance to the Trustees.

If you have any questions in relation to this article, please contact TOWNSENDS BUSINESS & CORPORATE LAWYERS on (02) 8296 6222.

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Buy/Sell Agreements for Co-owners of a Business

A Buy/Sell Agreement is a business succession contract usually established between co-owners of a business to enable the business to continue on the involuntary departure of the one or more of the owners in the event of their death, trauma, critical illness or total permanent disability. Typically, retirement or other voluntary dissolutions of the business are not covered under buy/sell agreements but come under contractual arrangements.

Generally, a buy/sell agreement is designed to cover different types of small to medium size business ownership structures, such as family trusts, partnerships or companies.

The aim of the agreement is to ensure that:

• The business is preserved and can continue to be operated by the surviving owners;
• The family or estate of the departing co-owner receives a payment that reflects the agreed value of their equity in the business; and
• Arrangements are established to ensure that a buy-out can be funded at the agreed value.

The operation of the agreement is triggered by the specified event and the buy-out of the departing co-owners’ business interest is usually funded by one or more insurance policies. Hence, the contract between the co-owners is usually comprised of a transfer (sale) agreement and a funding (insurance) agreement.

The transfer part of the agreement is in two parts. One part establishes a sale agreement called a sell or put option so that the surviving co-owners are required to purchase the departing co-owner’s share of the business. The second part is a buy or call option that requires the family or estate of the departing co-owners to sell the business share to the surviving co-owners.

The funding part of the agreement is intended to fund an agreed value of the business interests of the departing co-owner. The agreement will need to state whether this is the book value or the appraised value of the business at the time of the event, or alternatively, state how the value is to be determined. Regardless of this, it usually obliges the co-owners to take out and maintain one or more insurance policies covering their death, disablement, illness and trauma. Premiums may be tax deductible although tax advice should be sought on this aspect.

There are a number of obligations for co-owners entering succession agreements. Key among them is to:

• Maintain all the insurance policies mentioned in the agreement, including paying any premiums as required under these policies;
• Keep all personal documents such as Wills, Enduring Powers of Attorney and any superannuation fund death benefit nominations up to date;
• Bring the buy/sell agreement to the attention of their attorneys and executors so they are aware of the contract obligations; and
• Not act contrary to the obligations of the buy/sell agreement.

Generally, for tax purposes the contract is specified to be operating from the date of the trigger event. Clients will need legal and tax advice on what is the most suitable arrangement for them.

If you have any questions in relation to this article, please contact TOWNSENDS BUSINESS & CORPORATE LAWYERS on (02) 8296 6222.

For related tax structuring advice please do not hesitate to contact us.

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Choosing your Executor

It seems that one of the hardest things for most testators these days is choosing who will be their executor. And the more complex the Will the harder it becomes.

In the good old days (when the worst swear word on TV was “bother” and there were no such things as phone contracts) people making their Will (who are called ‘the testator’) simply chose their spouse as their executor. If the spouse died before them then they would substitute their eldest son. Simple.

These days estate planners bring up all sorts of other things to think about that now make the choice a lot harder.

Firstly, if my spouse is my Executor and also my sole beneficiary how can I be sure that they will use my estate for the benefit of our children. They could re-marry and use the assets for their new wife. Anyone remember Lang Hancock and Rose

To protect their kids’ inheritance the testator might want to give only the income from their estate to their spouse with the capital going to the kids after the spouse dies. Will that be enough for the spouse in their advanced years?

The family home will be excluded anyway because almost certainly it is held as joint tenants so that the testator’s half will go to the spouse automatically rather than through the Will. Maybe that should be changed.

So perhaps the Executors should be the spouse and some at least of the children. If there are more than two children there’s the problem of choosing which ones, noting that the more executors there are the more problems there will be in administering the estate particularly if some of them live in other States or countries.

Cases like Katz v Grossman, where the daughter chosen as trustee/executor took steps to cut her brother out of the estate, make the decision one to be carefully considered.

If there is a testamentary trust in the Will there is the issue of an independent executor/trustee. With the recent attacks on discretionary trusts by the courts, if the testamentary trust is designed to protect the assets of the beneficiaries from their creditors then the greater level of independence of the trustees the less likely the trust will be viewed as simply an extension of the beneficiary.

Then there is the issue of the complexity of the estate and whether the person you would most like to be executor has the necessary commercial and financial experience to handle the role – not to mention the time. Of course you could choose a professional executor (accountant, solicitor or even a trustee company) but that comes at a cost to the estate. It may nonetheless be worth it in the long run.

The choice of executor is important and must be made carefully in order to ensure that the testator’s wishes and goals are met in all the circumstances.

If you have any questions in regard to this article, please contact TOWNSEND BUSINESS & CORPORATE LAWYERS on (02) 8296 6222.

For related tax advice please do not hesitate to contact us.

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