Many of you will have seen the recently released minutes from the National Tax Liaison Group meeting held on 23 June.
One item of interest relates to the ATO’s view on taxpayer alerts (TA).
In particular, the ATO claims that TAs are simply intended as an 'early warning' to taxpayers and their advisers of significant new and emerging higher risk tax planning issues or arrangements the ATO has under risk assessment.
The ATO claims TAs are essentially a 'press release' about issues causing it concern which it releases 'in the interests of an open tax administration'. The ATO stressed that TAs are not expected to replace rulings, and are not meant to be an ATO view of the law.
Until next week.
Thursday, September 30, 2010
Friday, September 24, 2010
When a power to vary is not a power to vary
Last week, we touched on the fact that many trust deeds do not have any power to vary in them.
There are similarly many trusts that do have a power to vary, but that power to vary is not as comprehensive as may otherwise be assumed.
Two recent examples that we have seen are summarised below.
The first example (which was highlighted in quite a high profile case last year) turns on whether a power to vary extends to all aspects of the trust instrument. In particular, some powers to vary are restricted to either:
1. The formal provisions that actually establish the terms of the trust.
2. Alternatively, the power to vary might be restricted to the actual powers that the trustee has to run the trust.
Care should always therefore be taken to understand exactly how comprehensive the power to vary is.
Similarly, some powers to vary are subject to specific prohibitions. For example, a power might extend to all parts of a trust other than the rules regulating the appointor provision.
In these types of situations, it is generally impossible (unless court approval is obtained to vary the relevant clause), even if the affected party (for example the appointor) were to consent to the variation.
Ultimately (and generally in complete contrast to superannuation trust deed variations), there is always the need to very carefully review the exact basis on which any purported variation to a family trust is to be implemented before making a change.
Until next week.
There are similarly many trusts that do have a power to vary, but that power to vary is not as comprehensive as may otherwise be assumed.
Two recent examples that we have seen are summarised below.
The first example (which was highlighted in quite a high profile case last year) turns on whether a power to vary extends to all aspects of the trust instrument. In particular, some powers to vary are restricted to either:
1. The formal provisions that actually establish the terms of the trust.
2. Alternatively, the power to vary might be restricted to the actual powers that the trustee has to run the trust.
Care should always therefore be taken to understand exactly how comprehensive the power to vary is.
Similarly, some powers to vary are subject to specific prohibitions. For example, a power might extend to all parts of a trust other than the rules regulating the appointor provision.
In these types of situations, it is generally impossible (unless court approval is obtained to vary the relevant clause), even if the affected party (for example the appointor) were to consent to the variation.
Ultimately (and generally in complete contrast to superannuation trust deed variations), there is always the need to very carefully review the exact basis on which any purported variation to a family trust is to be implemented before making a change.
Until next week.
Friday, September 17, 2010
Trust deed updates - Start at the start
Due to the recent decision in Bamford, we have seen a significant increase in the number of advisers recommending to their clients that a complete review of, particularly family trusts, be done for each client.
As part of this review process, there is often a subsequent recommendation that the trust deed needs to be updated for all recent changes in the law, or at the least to make the deed 'Bamford compliant'.
Previous posts have touched on some of the issues that arise in this regard. This week, I was reminded, however, about the importance of getting the basics right in relation to any deed update.
Arguably the most fundamental issue that needs to be considered in any deed update is whether there is in fact a power to vary the document.
There are an amazing number of trust deeds that, for whatever reason, in fact do not have any power to vary under them at all.
In these situations, the only way to amend the trust deed is to apply to court – which is obviously an expensive and time consuming exercise. In some situations however, it is a step that commercially must in fact be taken.
Next week, I will try to detail two further issues that arise in relation to deed updates that should also be kept in mind.
Finally, thank you for all those who have provided feedback on last week's post about the ATO ruling on insurance trusts. I have emailed all those who have emailed me about the posting, however if there is anyone who would like further comments please let me know.
Until next week.
As part of this review process, there is often a subsequent recommendation that the trust deed needs to be updated for all recent changes in the law, or at the least to make the deed 'Bamford compliant'.
Previous posts have touched on some of the issues that arise in this regard. This week, I was reminded, however, about the importance of getting the basics right in relation to any deed update.
Arguably the most fundamental issue that needs to be considered in any deed update is whether there is in fact a power to vary the document.
There are an amazing number of trust deeds that, for whatever reason, in fact do not have any power to vary under them at all.
In these situations, the only way to amend the trust deed is to apply to court – which is obviously an expensive and time consuming exercise. In some situations however, it is a step that commercially must in fact be taken.
Next week, I will try to detail two further issues that arise in relation to deed updates that should also be kept in mind.
Finally, thank you for all those who have provided feedback on last week's post about the ATO ruling on insurance trusts. I have emailed all those who have emailed me about the posting, however if there is anyone who would like further comments please let me know.
Until next week.
Topics:
Bamford,
Deed of variation,
Discretionary trust,
Insurance,
Trust deed
Wednesday, September 8, 2010
ATO ruling on insurance trusts
Last week the ATO released a Product Ruling (PR2010/18) in relation to the capital gains tax consequences for the beneficiary of an insurance trust deed.
In many respects the ruling reflects what most specialists in this area (including View Legal) have been saying for many years. That is that a properly crafted insurance trust deed should provide appropriate protection for the principals of a business without any significant tax detriment, notwithstanding that there may be other commercial issues to consider regarding the structure.
Unfortunately the positive aspects of the ruling are largely undermined by the fact that the outcomes are based on the assumption that the insurance trust deed will create absolute entitlement for each beneficiary in the relevant insurance policy. As many advisers who work in this area will know, the expressed views of the ATO concerning absolute entitlement are somewhat contentious and the ATO continues to refer to a draft ruling that has never been finalised - despite being issued in 2004.
One practical issue is that the ruling released last week confirms that in order to ensure absolute entitlement the relevant beneficiary must be able to call for the asset at any time. This largely undermines one of the main reasons advisers had historically recommended insurance trusts - that is that the trustee will have the ability to ultimately control the payment of any insurance proceeds received.
A further practical issue, given the way in which many providers have traditionally structured trust arrangements is that the product ruling only relates to insurance trust deeds where the company acting as trustee is an entity owned and controlled by the principals involved in the business entity and the relevant insurer is not be a party to the arrangements.
For those interested in reading a full copy of the ruling please email me.
Until next week.
In many respects the ruling reflects what most specialists in this area (including View Legal) have been saying for many years. That is that a properly crafted insurance trust deed should provide appropriate protection for the principals of a business without any significant tax detriment, notwithstanding that there may be other commercial issues to consider regarding the structure.
Unfortunately the positive aspects of the ruling are largely undermined by the fact that the outcomes are based on the assumption that the insurance trust deed will create absolute entitlement for each beneficiary in the relevant insurance policy. As many advisers who work in this area will know, the expressed views of the ATO concerning absolute entitlement are somewhat contentious and the ATO continues to refer to a draft ruling that has never been finalised - despite being issued in 2004.
One practical issue is that the ruling released last week confirms that in order to ensure absolute entitlement the relevant beneficiary must be able to call for the asset at any time. This largely undermines one of the main reasons advisers had historically recommended insurance trusts - that is that the trustee will have the ability to ultimately control the payment of any insurance proceeds received.
A further practical issue, given the way in which many providers have traditionally structured trust arrangements is that the product ruling only relates to insurance trust deeds where the company acting as trustee is an entity owned and controlled by the principals involved in the business entity and the relevant insurer is not be a party to the arrangements.
For those interested in reading a full copy of the ruling please email me.
Until next week.
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