Tuesday, August 29, 2017

9 reasons you should give away your IP in books


At View we have produced over 1.5 million words of published technical content via a series of over 20 books.

Indeed we have ‘written the book’ (and in some cases more than one book) in each of our core areas of specialisation – estate planning, trusts, tax, smsfs, asset protection and estate administration.

There is a nominal price point to access the intellectual property (IP) in our books; indeed often we give interested advisers copies for free.

Why do we do this and why do we encourage all advisers who are interested in our approach to do the same with their IP?

The key reasons, in no particular order, are as follows –
  1. ZMOT (being the Google theory of ‘zero moment of truth’ before a buying decision is made) says that generally there must be 7 hours of free content, on 11 separate occasions, across 4 medias before a buying decision is made. 
  2. Books are the best way we know of to achieve the ‘7/11/4 rule’ and allow easy leverage into multiple channels (as one example, at last count, we had over 30 iterations sourced from our book content with podcasts, seminars, white papers, webinars, apps, online university level courses etc). 
  3. It has been argued that every CEO or business owner should have published at least one book. 
  4. Yes it is possible to achieve leverage without a book, however for most it would be like (for example) trying to succeed in the music industry without releasing recordings. 
  5. LinkedIn Influencer Ron Baker says ensuring he gives away all his intellectual capital each year forces him to replenish and this keeps him relevant – publishing a book helps achieve this aim. 
  6. There is a positioning with handing over a book that can not be easily replicated – it is a business card that is not easily thrown away. 
  7. The discipline, habits and learnings created by writing a book can not be underestimated – they have a huge impact on all aspects of your business and indeed life. 
  8. As has been observed widely – there is no greater ‘ROI’ than a good book. Books change lives and rarely cost more than $100. What other platform delivers this much value for such a nominal investment. 
  9. Books demonstrate that the author knows that information in the age of Google can, and indeed must and inevitably will be, free. Knowledge workers understand that the wisdom of understanding information is what is valuable. They also know that the insights of a wise and knowledgeable adviser are even more valuable. 
For those interested, our book ‘The Dream Enabler Reference Guide’ explores a number of the themes explaining our approach, see – https://viewlegal.com.au/product/the-dream-enabler-reference-guide/ 

All comments or likes of this week’s post will go into the draw to win a copy of the book. 


Tuesday, August 22, 2017

Document witnessing - measure twice; cut once


The rules in relation to witnessing wills (see the following post - Signing estate planning documents) and power of attorney documents are mandated by legislation.

This said, the rules for witnessing power of attorney documents are frustrating given each state has its own regime (see further comments in our earlier post - Witnessing powers of attorney). At one end of spectrum NSW essentially mandates that lawyers must witness whereas in WA there are dozens of categories of eligible witnesses including virtually all professions.

With other legal documents the rules are less certain and unfortunately will often depend on the application of internal rules by third parties.

Generally with most deeds they may be witnessed by one or more witnesses, not being a party to the instrument. While generally not strictly the position at law, the witness should ideally also not be related to anyone in the deed (for example, spouses should not witness each other signatures).

Practically, if documents are provided to (for example) a bank, the bank will generally require an independent 3rd party witness, regardless of the legal position.

Indeed, often financiers will refuse to accept any document where a witness has the same surname as the person whose signature is being witnessed.

Furthermore, often the bank’s position on refusing the validity of the witnessing does not come up until very inconvenient moments; often triggering significant time delays and unnecessary costs.


Image courtesy of Shutterstock

Tuesday, August 15, 2017

The most important tax tip for family law matters you will learn this week


As set out in earlier posts, and with thanks to the Television Education Network, today’s post considers the above mentioned topic in a ‘vidcast’ at the following link - https://youtu.be/XZx3PozjtTg

As usual, an edited transcript of the presentation for those that cannot (or choose not) to view it is below –

If you go back many years to the introduction of the Division 7A regime in the late 1990s, early 2000s, one of the anti-avoidance provisions that they brought in was ultimately set out in subdivision EA of the Tax Act.

These rules said regardless of any other provisions, if a distribution was made out of a trust and it was left as an unpaid present entitlement (UPE) to a company and there was then a debit loan made by the trust, that debit loan has to comply with the Division 7A rules.

In this type of situation, some advisers try to argue that if the funds are lent out for income generating purposes and the interest on the debt is deductible, then the loan is not caught by Division 7A. The reality however is that the loan is a significant tax problem.

In this particular case study scenario, there were two key problems. Firstly, there was an EA problem because the trust had made debit loans when there were UPEs to a corporate beneficiary. In addition to the EA loans, there had been purported distributions by the trust to the wife over many years.

However, the wife was not a beneficiary.

So not only was there the big EA problem, there also had been a whole raft of distributions over many years that were completely invalid on the face of the trust instrument.

Ultimately, the parties entered into a settlement where the husband took over control of the trust, the wife got paid out all of her loan accounts, and was entitled to keep all of the historical distributions.

Now the interesting aspect is that the wife and her family lawyers asked for a tax indemnity in relation to both the failure to comply over the years in relation to EA and the inability to read the deed and thus the invalid distributions to the wife.

Then, three months after the wife had been paid out, the husband by chance gets a tax audit. The wife didn’t have to worry about the outcome of the tax audit because she was fully indemnified.

Tuesday, August 8, 2017

How long can deceased estates run?


A recent post looked at the requirement that following the death of a member, an SMSF must ensure that it pays a member’s death ‘as soon as practical’ (see - How soon is now ** (or ‘as soon as practicable’)?)

Following last week’s post in relation to the liability of executor’s for a deceased’s tax debts, one related issue is worth considering – namely - how long can a deceased estate remain in ‘administration mode', following someone’s death?

Assuming there are no complications with the deceased estate due to, for example, a challenge against a will, it is generally the case that the Tax Office accepts a maximum period of three years for an estate to be administered.

The administration of the estate, from the Tax Office’s perspective involves the ultimate distribution of assets to beneficiaries if there is no formal testamentary trust under a will, or the distribution of assets to a testamentary trust if the deceased has incorporated that into their will.

This effectively means that for the purposes of the excepted trust income rules (these are the rules that allow children to be treated as adults for tax purposes), all wills contain a form of testamentary trust.

Where the will provides for the assets to pass directly to beneficiaries, the length of time the ‘testamentary trust’ lasts for tax purposes will be equal to the maximum period of time it takes to administer the estate. In contrast, where a traditional testamentary trust is established, the standard vesting date rules for trusts apply (broadly up to 80 years from the date of death).

It is important to note that while the Tax Office allows a maximum of three years, often they will in fact expect that the deceased estate is administered within 12 months from the date of death, and therefore may deny access to the excepted trust income provisions despite the fact that the estate has not been fully administered.

The Tax Office has confirmed its broad position in this regard via taxation ruling IT2622. As usual, if you would like a copy of the ruling please contact me.

The above post is based on an article originally published in the Weekly Tax Bulletin.

Image courtesy of Shutterstock

Tuesday, August 1, 2017

At last some tax clarity for legal personal representatives of deceased estates(?)


Practical Compliance Guideline 2017/D12 (PCG 2017/D12) contains guidance from the ATO in relation to the liability of an executor or legal personal representative (LPR) of a deceased estate for the deceased’s tax debts.


Background

Historically, the leading decision in this area has been seen as the case of Barkworth Olives Management Ltd v DFCT [2010] QCA 80 (Barkworth).

Broadly Barkworth acknowledged that, subject to some limitations (such as the application of s 99A ITAA 1936), the trustee of a trust has a right of indemnity for trust tax debts and under s 254 ITAA 1936 is generally not personally liable for those debts.

In the context of a deceased estate, this means the LPR will generally not be personally liable for the deceased’s tax debts.

Personal liability will however arise (to a maximum of the original assets in the estate) where the assets of the estate have been fully distributed, or distributed to an extent that means there are still unsatisfied tax debts outstanding.

In contrast, if a tax debt arises during the course of the administration of the deceased estate, the LPR can automatically be personally liable, regardless of the assets in the estate.

Importantly, beneficiaries of deceased estates can never be liable for the tax debts of the deceased, unless there has been fraud or evasion.

Historically, where an LPR was concerned that there may be taxes that they might ultimately be personally liable for, best practice was to obtain clearance from the ATO that there were no outstanding tax liabilities. However, the ATO no longer issues letters of clearance.

Therefore, if there are genuine concerns that the ATO may audit the estate, then the conservative approach is generally for the LPR to retain sufficient assets to cover any possible tax liability for either two or four years (depending the nature of assets in the estate and therefore the potential audit period) following the lodgement of the final tax return for the deceased.

Practically, in this type of situation it therefore means that the estate can only be fully administered and final lodgements made to the ATO after the two or four year period has lapsed. This is because until the final notice of assessment has been received by the LPR (listing no outstanding amounts owing by the estate), they are not relieved of personal liability.

This conclusion also relies on the assumption that there is no fraud or evasion involved, as if there is, the ATO is not restricted by time limits on the ability to issue amended assessments.


PCG 2017/D12 – Overview


PCG 2017/D12 is broadly consistent with the approach outlined above, although (as is often the case with this style of release from the ATO) there some important caveats.

In particular, the guidelines outline the circumstances where the LPR will be treated as having notice of a claim or potential claim by the ATO, which could result in personal liability should the assets of the estate be distributed without leaving sufficient funds to discharge the ATO claim.

The ATO adopts the view that the LPR will have a notice of the claim (or potential claim) where:
  • the deceased had amounts owing to the ATO at the date of their death (including any additions to those amounts such as interest); 
  • the deceased had an outstanding assessment from an income tax return which had been lodged but not yet assessed by the ATO; 
  • the ATO notifies the LPR within 6 months of the lodgement of the deceased’s last return that it intends to review the deceased person’s tax affairs; or 
  • further assets come into the hands of the LPR after what was thought to be completion of the estate’s administration (the ATO takes the view that the identification of further assets might suggest the deceased’s income was understated previously). 
In each of the above circumstances, the LPR should take a conservative approach and delay the distribution of some or all of the estate assets, until the estate’s potential tax exposure can be quantified.


‘Smaller and less complex estates’

Arguably the most significant caveat with PCG 2017/D12 is that it is expressly stated to only apply to ‘smaller and less complex estates’.

Assuming an estate satisfies the concept of being ‘smaller and less complex’, PCG 2017/D12 confirms the basis on which a wind up can proceed without concern that the LPR’s personal assets may be exposed to a claim by the ATO.

In particular, the following elements must all be present:
  • in the 4 years before their death the deceased did not carry on a business or receive distributions from a trust; 
  • the estate assets consist solely of shares or interests in widely held entities (such as public companies), superannuation death benefits, Australian real property, cash and personal assets; 
  • the total market value of the estate assets was less than $5 million; 
  • none of the circumstances outlined earlier in this article where the LPR is deemed to have notice of the claim (or potential claim) arise; 
  • the LPR acted reasonably in lodging the deceased person’s outstanding returns; and 
  • the ATO has not given the LPR notice that it intends to examine the deceased person’s tax affairs within 6 months from the date of lodgement of the last outstanding return. 

Conclusion


As a result of PCG 2017/D12 (and assuming the draft guidelines are issued in final form on broadly similar terms), it should be possible for smaller and simpler estates to be wound up in a shorter period of time, without the LPR creating personal exposure in relation to tax debts.

While the guidelines are a welcome initiative in a fast growing area for many adviser practices, they also highlight that where clarity is most needed – that is larger and more complex estates – significant risks remain for LPRs.

Any person currently an LPR, or considering accepting an LPR role, in situations outside the scope of PCG 2017/D12 should continue to proceed with caution in relation to tax debts.

The above post is based on an article originally published in the Weekly Tax Bulletin.

Image courtesy of Shutterstock