Tuesday, August 21, 2018

Shake it off and Conflict of Laws **

View blog Shake it off and Conflict of Laws ** by Matthew Burgess
The concept of ‘conflict of laws’ is one that comes up regularly in estate planning exercises and essentially relates to is determining which rules apply when there are two or more potential jurisdictions in relation to a certain set of circumstances.

Conflict of law issues can come up in a wide range of situations. One recent example related to a trust where the controllers of the trust wanted the laws of South Australia to apply, even though there were no substantial assets held in South Australia and the trustee company was registered in New South Wales.

The attraction of having the South Australian laws apply was that it would mean (potentially) that the trust could last forever due to the effective abolishment of the perpetuity rules in South Australia some years ago.

Broadly, so long as certain steps are followed, it is generally possible to have a trust with assets in any other Australian state regulated by South Australian law.

** For the trainspotters, ‘Shake it off’ by Taylor Swift is the number one hit on Google for songs about from 2014

Tuesday, August 14, 2018

Go your own way - The Rinehart Ruling – a key aspect **

View blog Go your own way - The Rinehart Ruling – a key aspect ** by Matthew Burgess
Following last week’s post in relation to the, suspected, Tax Office Ruling in relation to the Rinehart trust dispute matter there was some discussion about one key aspect of the reasoning.

In particular, the question of when a beneficiary becomes absolutely entitled to a particular capital asset as against the trustee is generally seen as critical.

The position appears to be that, where a trustee has a right of indemnity (and lien over) the relevant asset, it is not enough that the beneficiary has a ‘vested and indefeasible’ interest in the trust capital.

Instead, the beneficiary must have the right to force the trustee to transfer to them the asset, subject only to the payment of the trustee's expenses.

In order for this to be the case the better view appears to be that one of the following tests must be met, despite some suggestions to the contrary in the Tax Office’s Taxation Ruling 2004/D25 (TR 2004/D25), mentioned in last week’s post –

1. If the trust is over particular assets, then the trustee has a clear duty to transfer those assets to the beneficiary, without the trustee having any express or implied power of sale under the trust instrument.

2. Alternatively, if the trustee has a power of sale, the beneficiary must have demanded a particular asset be transferred to them and must tender sufficient funds to the trustee to satisfy the trustee’s right of indemnity.

3. Finally, absolute entitlement may be created by a trustee resolving to exercise a power under the trust deed (or at law) that a particular asset be immediately distributed to the beneficiary.

Importantly, and as flagged by the Tax Office in TR 2004/D25, a trustee’s right of indemnity of itself is irrelevant to the question of whether absolute entitlement exists. Rather it is a trustee's power of sale that will generally prevent a beneficiary being able to demonstrate absolute entitlement. However this point is unfortunately not clear in TR 2004/D25, despite the Ruling running to over 100 pages.

** For the trainspotters, ‘Go Your Own Way’ is another song by legendary band Fleetwood Mac from 1977, learn more here

Tuesday, August 7, 2018

Little lies? The Rinehart Private Ruling **

View blog Little lies? The Rinehart Private Ruling ** by Matthew Burgess

Obviously, there has been an enormous amount of interest in relation to the Rinehart trust dispute matter over an extended period of time.

Interestingly, the centrepiece of the dispute, at least from a tax perspective, does not always receive a significant amount of attention.

Given what has been disclosed publicly, there are many who believe that Ms Rinehart successfully obtained a private ruling from the Tax Office in relation to whether there were any capital gains tax (CGT) consequences of the trust, which is the focus of the dispute, vesting when Ms Rinehart’s youngest child turned 25.

While it cannot be certain, it appears that private ruling authorisation No. 1012254771092 relates to the Rinehart matter. 

The private ruling carefully considers whether CGT event E5 occurs on the vesting of a trust. CGT event E5 is said to occur when a beneficiary becomes ‘absolutely entitled' to a CGT asset of trust as against the trustee.

The ruling then goes onto explore in some detail the broad position that the Tax Office adopts in these areas based on Taxation Ruling 2004/D25 (TR 2004/D25). The Tax Office confirms that while TR 2004/D25 remains in draft, so long as it is not withdrawn, it does represent its view of the law.

Based on the analysis of TR 2004/D25, the ruling concludes that because no beneficiary was able to call for any one or more of the assets to be transferred to them, they were not entitled to any assets as against the trustee, and therefore, CGT event E5 did not occur on the vesting of the trust.

** For the trainspotters, ‘Little Lies’ is a song by legendary band Fleetwood Mac from 1987, learn more here

Tuesday, July 31, 2018

#itsthevibe and other #estateplanningwarstories

View blog #itsthevibe and other #estateplanningwarstories by Matthew Burgess

Arguably one of the most quoted scenes from the famous documentary ‘The Castle’ (at least lawyers generally see it as a documentary …) is when lawyer Dennis Denuto closes his court room appearance with the claim that ‘it’s the constitution, it’s Mabo, it’s justice, it’s law and it’s the vibe and ehhh – no that’s it – it’s the vibe'.

While the scene has undoubtedly inspired many lawyers in a variety of situations, our experience is that in an array of estate planning situations, the ‘vibe’ is a fundamental principle.

Indeed, the concept of ‘the vibe’ has been given its own chapter in a recently released estate planning book by View.

One of key goals at View is ensuring that we have ‘written the book’ for every aspect of the law we specialise in.

Following the successful launch of books in estate planning, tax, trusts, entity structuring, testamentary trusts, SMSFs, asset protection and business succession, we have now developed and launched another book – ‘Estate Planning War Stories’.

Story telling is often seen as the cornerstone of explaining any principle. Certainly we have seen in the estate planning area that there are few approaches as impactful as learning based on ‘war stories’.

The book collects court decisions and client based scenarios that explain 10 key estate planning principles.

The 10 key principles are –

1. Don’t become a war story

2. It’s the ‘vibe’

3. Let’s kill all the lawyers

4. Estate planning is more than a will

5. Don’t get stuck in the middle

6. Murphy’s Law

7. Iterate & update

8. Just do it

9. No estate plan, means you have an estate plan

10. It depends

All of the View books (over 20 at last count) can be accessed via our website.

Anyone who likes or shares this post will go into the draw to win a free copy of this book.

Tuesday, July 24, 2018

Game over for trust splitting? The ATO embraces Revisionist History

The ATO has released its views on trust splitting in Draft Taxation Determination (TD 2018/D3).
There are a range of concerns with TD 2018/D3 for all trust advisers.  
A summary of the key issues is set out below. 
The factual matrix provided in TD 2018/D3 is very specific and lists a number of line items that may, or may not, be a part of a trust splitting arrangement. Many of the arrangements we have seen historically have involved a change of trustee in relation to specific assets and few or none of the other features listed in the draft ruling (for instance, no changes to the appointors, right of indemnity or range of beneficiaries).
For TD 2018/D3 to be credible, it will be imperative that more examples are included highlighting the range of potential trust splits, and in turn, highlighting the types of trust splitting arrangements that will not give rise to any CGT consequences.
For example, the ATO appears to place significant weight on issues such as varying the trustee’s right of indemnity and adjusting the range of potential beneficiaries together with a decision to change appointorship.
It is well settled law (and the ATO has long accepted - for instance, in the withdrawn Statement of Principles on Trust Resettlements and subsequently in TD 2012/21) that each of these changes in isolation do not cause any CGT event to arise. It is therefore critical to highlight what combination of changes, in the ATO’s view, amount to a resettlement.
Flawed assumptions
Unfortunately, in concluding that trust splitting will cause CGT event E1, it appears the ATO has ignored most case law and legislation in the area, and indeed its most recent private ruling and earlier private rulings.
Arguably, TD 2018/D3 turns entirely on an assumption that, without any analysis, concludes how a court may respond to the application of an aggrieved beneficiary of a discretionary trust the subject of a trust splitting arrangement.
The assumption is unfortunately fundamentally flawed in at least 3 areas: 
  • Despite a virtually identical factual scenario, TD 2018/D3 assumes that in 1 instance, the court will be resistant to an application, and yet in another instance, will support an application. There is no authority provided for either conclusion.
  • More fundamentally, the paragraphs are based on a significant misunderstanding of the law in this area. There is substantive and longstanding case law confirming that the beneficiary of a discretionary trust does not have a proprietary interest in the trust assets and their rights against the trustee are limited. In particular, while a beneficiary has a right to proper administration and a right to be considered in relation to distributions of income or capital, a discretionary beneficiary does not have any legal or equitable right to distributions. TD 2018/D3 completely ignores this position.
  • Finally, TD 2018/D3 fails to acknowledge that the mere amendment of a range of potential beneficiaries is highly unlikely to of itself cause a resettlement (as acknowledged by the ATO in TD 2012/21). Therefore, if a trust splitting arrangement takes place, and as part of the arrangement, the range of beneficiaries of the split trust is narrowed, then the conclusions in the abovementioned paragraphs are irrelevant. 
Furthermore, the conclusions in TD 2018/D3 are such that it would mean every single change of trustee or even a change of appointor (or principal) of a family trust would be liable to trigger (if the ATO felt the arrangement was not usual) CGT event E1 – a clearly unsustainable position. In particular, the logic of the ATO would imply that at any time the trustee of a trust is changed, it automatically means that the new trustee (and their family) would benefit from the trust to the exclusion of the old trustee (and their family) and that a court would with certainty intervene if ever requested by a disgruntled beneficiary.
Frustratingly TD 2018/D3 also contains long winded paragraphs, unsupported with any authority. Some of these statements are indeed arguably irrelevant to the subject matter. See for example the entire section under the heading ‘Settlement of assets on terms of a different trust’ – and in particular the sweeping generalisations at paragraph 28 about ‘practical problems’ with trust splits. At what point did ‘practical problems’ become a key factor in triggering CGT events? 
Similarly, the ATO essentially ignores both High Court and Full Federal Court authority in decisions such as FCT v Commercial Nominees of Australia Ltd (2001) 47 ATR 220 (Commercial Nominees) and FCT v Clark (2011) 190 FCR 206 (Clark) when making conclusions in TD 2018/D3 about resettlement.
In particular, both Commercial Nominees and Clark acknowledged that it is completely expected that over the life of an 80-year discretionary trust, there will be changes, at times significant changes, in relation to the conduct of the trust. This is reflective of a continuing trust. 
Indeed, given current life expectancies of humans, it would be impossible not to have fundamental changes to the make-up of a trust over an 80-year period.
It appears that TD 2018/D3 is implicitly predicated on a belief that, despite superior court authority, a separate set of rules apply to discretionary trusts as compared to unit trusts and superannuation funds.
Such a belief is unsustainable in the context of both High Court and Full Federal Court authority and in the context of the ATO’s own publications. It is similarly unsustainable that steps as simple as changing an appointor, trustee and the potential range of beneficiaries could be said to amount to a resettlement.
This conclusion is further reinforced by a failure in TD 2018/D3 to coherently address why the specific tax exemption available for discretionary trusts on a change of trusteeship, that being the rollover relief available under s 104-10 of the ITAA 1997, can be ignored.
Nor is the requirement under s 102-25 of the ITAA 1997 mentioned – that is, that if there are multiple potential tax events, the most specific must apply.
Aside from the specific exemption for changes of trustee, applying the principles from Commercial Nominees, Clark and TD 2012/21, it is clear that at law that a change in the terms of any trust (ie including a discretionary trust) pursuant to the exercise of an existing power will not result in the termination or establishment of a new trust.
Therefore, the example provided in TD 2018/D3 that the proposed amendment to appoint separate appointors and trustees of the sub-trust, pursuant to an express power under the trust deed allowing the appointments to be made, is incorrect.
In a sentence, none of the changes in the example in TD 2018/D3 give rise to a separate charter of rights and obligations so substantive that could give rise to the conclusion that assets have been settled on terms of a different trust.
Case law
In some instances, TD 2018/D3 refers to the decision in Commissioner of State Revenue v Lam and Kym Pty Ltd [2004] VSCA 204 (Lam & Kym), however reference to this decision is not helpful to the ATO’s arguments.
In particular:
  • Lam & Kym involved an express declaration of trust over specific assets, which does not appear to be the case in the factual scenario considered in TD 2018/D3;
  • In any event, Lam & Kym was a Victorian Supreme Court case which has been largely superseded by the High Court in Clark; and
  • Clark confirmed, as acknowledged by the ATO in TD 2012/21, that a variation of a trust by the trustee in accordance with an express power in the trust instrument can generally not result in the establishment of a new trust. 
Furthermore, while the case of Oswal v FCT [2013] FCA 745 (Oswal) is referenced, it again is not helpful to the position that the ATO is trying to sustain as Oswal specifically related to assets being held for the benefit of 1 beneficiary of a trust – in our experience, it is never the case that a trust split occurs in the manner that is analogous to the Oswal decision.
The ATO reaches the quite extraordinary conclusions without any supporting argument in relation to the case law or legislation in this area that despite an identical trust instrument applying, there are somehow circumstances that lead to the conclusion that the trust powers of the split trust are suddenly distinct. 
Even relying on the well-known legal principle from the 1997 film ‘The Castle’ (‘it’s the vibe’) would fail to support such a conclusion. Indeed, there would appear to be no legislation or case law which would support the conclusion reached.
The ATO also concludes that trust splitting occurs by declaration of trust, without any attempt to justify its conclusion. This is another concerning assumption given that in our experience, we are unaware of any trust splitting that takes place in a manner other than by way of a change of trusteeship.
To argue that a change of trusteeship amounts to a declaration of trust over assets is nonsensical – the whole commercial framework of the change of trusteeship is that the existing trust remains in place and there is simply a change in the legal owner of the trust assets, with that trustee however being completely bound by the terms of the original trust instrument.
Furthermore, to reach these conclusions, again without any reference to the legislative position outlined above and the specific CGT exemption available for changes of trusteeship, is inappropriate.
The ATO states that the ruling is to apply on both a retrospective and prospective basis. 
To issue a ruling with retrospective effect when there have been positive rulings issued by the ATO over an extended period is arguably irresponsible and will likely cause unnecessary and significant taxpayer and industry backlash.
As noted above, there are private rulings previously published by the ATO (as recently as 2016) confirming that trust splitting arrangements on similar terms did not constitute an E1 event.
It is extremely concerning that the ATO is purporting to now retrospectively change its approach to a longstanding, and tax benign, arrangement.
At a minimum, there should be an explanation as to why the position adopted by the ATO historically has been abandoned and not considered relevant.
TD 2018/D3 also fails to explain why the change in approach by the ATO was not implemented when the trust cloning exemption was abolished for discretionary trusts by the Government without warning on 31 October 2008.
Trust splitting was extremely prevalent at the time of the removal of the trust cloning rollover relief.
Indeed, a cursory level of research would have demonstrated that leading tax specialists recommended trust splitting as the preferred approach to trust cloning for years before and after 2008 due to its effectiveness from a stamp duty perspective in some States.
Ultimately, there is a material risk that TD 2018/D3 will cause significant damage to the reputation of the ATO for failing to address these issues 10 years ago, if it truly felt an argument that trust cloning and trust splitting was essentially the same was sustainable. As Malcolm Gladwell might ask, is TD 2018/D3 another example of the ATO unilaterally embracing its own version of Revisionist History?
The above post is based on an article originally published in the Weekly Tax Bulletin.

Tuesday, July 17, 2018

Some things don’t change – division 7A and contracts 101 **

View blog Some things don’t change – division 7A and contracts 101 **  by Matthew Burgess
Following on from last week’s post, today’s post considers another aspect of where company constitutions have the terms of a Division 7A loan or facility agreement embedded in them.

In most circumstances, it is generally the case that the Tax Office will accept that the terms of the facility agreement will regulate any debit loans made by the company from time to time.

One difficulty however that can arise in this regard is that from a simple contractual perspective, these loans will not be effectively created unless the recipient of the loan is in fact a party to the constitution.

Under the Corporations Act, the constitution is a contract between the members and directors.

This means that if, for example, a loan is made to a non- member or director by the company, then the facility agreement contained within the constitution will not be able to be relied on.

** For the trainspotters, ‘Don’t change’ is a song by INXS from 1982, learn more here

Tuesday, July 10, 2018

Only one thing ? – constitutions + division 7A provisions **

View blog Only one thing ? – constitutions + division 7A provisions ** by Matthew Burgess
A previous post has considered the various trust deed providers that have from time to time contained a clause which seems to automatically convert an unpaid present entitlement into a loan. This week I was reminded of a similar difficulty with some constitutions offered by similar providers.

In particular, while the Tax Office has for some years accepted the ability for a company's constitution to set out the terms by which any loan by the company is made for Division 7A purposes, care must always be taken to ensure that the provisions of this loan (or facility) agreement do in fact reflect the intent of the parties.

A number of these types of facility agreements require compliance with the Division 7A provisions, regardless of the financial status of the relevant company. For example, even where a distributable surplus does not exist (and therefore the tax rules would not otherwise apply), many of these constitutions can in fact require compliance with the Division 7A rules.

While perhaps not so memorable as the ‘read the deed’ mantra for trusts, similarly we have a mantra of ‘read the constitution (& Tax Act)’ when considering company related issues.

** For the trainspotters, ‘The One Thing’ is a song by INXS from 1982, learn more here  

Tuesday, July 3, 2018

How are Windfalls after the Date of Separation Treated in Property Settlements?

View blog How are Windfalls after the Date of Separation Treated in Property Settlements?  by Matthew Burgess
One issue that arises relatively regularly in relation to personal relationship breakdowns is the way in which assets acquired by one spouse following the date of separation, but before the property settlement, are treated under the property settlement.

The issues in this regard can be particularly sensitive where the financial windfall is as a result of, for example, the death of a parent of one of the spouses or a windfall gain such as a lottery win.

Unfortunately, as is often the case in relation to family law matters, the one consistent theme is inconsistency.

In other words, the family court has stated strongly on a number of occasions that how financial windfalls received after the date of separation will be allocated under the property settlement will depend almost entirely on the particular factual circumstances.

For example, the family courts have adopted the following approaches:

1) completely segregating all of the financial windfall so that it is only accessible by the spouse who received it, while also not penalising the spouse in terms of what they are otherwise entitled to receive from the joint matrimonial property;

2) segregating the financial windfall to the benefit of the spouse who received it, however reducing that spouse’s entitlement to the joint matrimonial property;

3) including the financial windfall in the pool of assets to be distributed between the spouses, but adjusting the pool to provide a greater weighting to the spouse that received the financial windfall;

4) including the financial windfall in the matrimonial pool and essentially ignoring the source of the funds.

Broadly speaking, where a financial windfall or a significant financial contribution, has been made by a spouse prior to a property settlement, then the longer the time period between the windfall or contribution and the separation, the more likely it is that the family court will ignore the source.

Again however, this conclusion is subject to the overriding theme that the court will ultimately assess each situation on a case by case basis.

Tuesday, June 26, 2018

Take the money and run – interest deductions and succession planning **

View blog Take the money and run – interest deductions and succession planning ** by Matthew Burgess

Last week, we had cause to revisit a Tax Office ruling that is often overlooked in the context of family and business succession plans.

In particular, we were reviewing the handing on of control of a family trust, where as part of the overall arrangement, the intention was to pay down the credit loans owed by the trust to the parents of the individual taking control.

The trust was intending to use external bank funding in order to finance the pay down of the loans to the parents.

In this particular scenario, the conclusion was reached that the interest on the borrowing expense should be deductible – this conclusion was reached on the basis of Tax Ruling 2005/12.

The ruling is worth reviewing whenever interest deductibility is in issue as there are a number of fairly similar situations where the interest expense would not in fact be deductible, according to the analysis of the Tax Office.

As usual if you would like a copy of the ruling please contact me.

** For the trainspotters, ‘Take the Money and Run’ is a song by The Steve Miller Band from 1976, listen here


Tuesday, June 19, 2018

I fought the law … **

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/KyZWIQLE4dk

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

As set out in last week's post Trust distributions and the Domazet decision, this week's post considers some possible solutions to the issues that arose in the Domazet decision.

The first work around is probably the easiest and the best one in some respects. Simply, the No.2 trust could have included a clause that said, “Our trust automatically ends the day before the No.1 trust.” This one sentence would have arguably avoided the issue.

The second idea would have been to amend the trust deed for No.1 trust and remove the prohibition. In other words, amending the terms of the No. 1 trust instrument so that it required any other recipient trust end before the No.1 trust.

This idea, would have essentially relied on the wait and see rule which has been explored in previous posts.

The third idea is that the No.1 trust could have skipped distributing to No.2 and simply distributed directly to the relevant beneficiary. Many might however say, “Well Matthew, that sounds nice, but I suspect there would have been a lot of wider tax planning strategies that were being utilised by the No.2 trust.” Thus, there should be an asterisk next to this idea because in many instances this style of approach may not have actually worked.

The fourth idea is in fact what they actually did in the Domazet case, which is they applied to the court for rectification.

The rectification adopted the first approach outlined above (that is the variation to amend the vesting date of the No. 2 trust).

Thus, while the taxpayer 'won', they had all the issues that go with a rectification. They had pain, they had suffering, they had delays, they had vastly increased costs, and they had significantly more attention.

** For the trainspotters, see early punk outfit The Clash perform the Sonny Curtis (of 'The Crickets' fame) song 'I fought the law and the law won' – listen here – https://www.youtube.com/watch?v=tR3XY6wfSBw

Tuesday, June 12, 2018

Trust distributions and the Domazet decision

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/VG1Bh5XQOoY

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

Domazet is arguably, one of the highest high profile trust vesting-related cases. As usual, if you would like a copy of the decision please contact me.

The factual matrix in board terms was as follows.

The original trust was set up in the 1970s, named here as the No. 1 trust.

Many years later there is a desire to distribute to another trust (named here as the No.2 trust). The No.1 trust was set up in the 1970’s. The No.2 trust set up in the 2010s - in other words, many years later.

The provisions in the trust deed for the No.1 trust provided that distributions to another trust as beneficiary were possible, as long as the receiving trust ended before the vesting date of the No.1 trust.

Here, No.1 trust, or the trustee and its advisers assumed that the vesting date of the No.2 trust would be 80 years.

The reason they assumed that is because the Australian Capital Territory (ACT) had at one point introduced the statutory 80-year perpetuity period and the No. 1 trust was established in the ACT.

It was therefore assumed that the legislation applied. The problem was that they had misunderstood the way the statutory limit had been implemented.

In particular, each Australian jurisdiction implemented the 80 years statutory limit at different points in time. The adviser for the No.1 trust was Queensland-based.

The Queensland legislation had come in before the No.1 trust was set up. So, they just assumed that would be the case in the ACT. In fact, the ACT legislation came in after the No.1 trust was set up.

They then amended the No. 2 trust to ensure it ended with 80 years of the No. 1 trust being set up.

What this meant in the practical sense was that when the distributions took place, the No.2 trust in fact had a vesting date after the No.1 trust because the No. 1 trust did not with certainty have an 80 year life.

This was a big problem because it meant that distribution was void according to the terms of the No. 1 trust.

What that meant was that the No.1 trust would be assessed, as if there was no trust distribution at all, which triggers a flat rate of tax of 48.5 cents. To the extent there were any capital gains, the 50% general discount would also be completely ignored. These issues are explored further in an earlier post, see Trust distributions – three reminders.

Next week's post with consider some possible solutions given the factual matrix here.

Tuesday, June 5, 2018

Within you; without you - When is a Trust not in fact a Trust? **

View blog Within you; without you - When is a Trust not in fact a Trust by Matthew Burgess

The ability of third parties to attack arrangements on the basis they are void because they are a sham has been looked at in previous posts (see - Sham trusts and the Family Court and Leading gift and loan back case).

Arguably one of the leading cases which explores the ability of a trustee in bankruptcy to attack trust assets using the rules in relation to sham transactions is Lewis v Condon; Condon v Lewis [2013] NSWCA 204. As usual, a link to the decision is as follows – http://www.austlii.edu.au/au/cases/nsw/NSWCA/2013/204.html.

Although the facts were somewhat complex, at the centre of the dispute was a trust that had been established by a lady who subsequently became bankrupt and admitted that the structure facilitated ‘her purpose to deceive her former husband, the Family Court and to avoid tax’.

In considering whether the assets of the trust were exposed to attack from a trustee in bankruptcy on the basis that the trust was a sham the Court held relevantly as follows –
  1. Before any trust will be held void as a sham, it is necessary to show that there was an intention that the structure created not bear its apparent legal consequence. That was not the case here; 
  2. Even where a trust is established with an admitted purpose of deceiving, this is not enough to mean it is a sham, indeed here such an intention was in fact ‘entirely consistent with the creation of a genuine discretionary trust’; 
  3. Once it was established that the trust on creation was not a sham, subsequent events cannot turn the structure into a sham. 
The decision also confirmed that in a practical sense, a new trustee holds office from the time of their appointment replacing the previous trustee and not from the time trust property is formally transferred.

** For trainspotters, ‘Within you; Without you’ is the only George Harrison written song on the Beatles release ‘Sgt Peppers Lonely Hearts Club Band’, listen here – https://www.youtube.com/watch?v=q2dMSfmUJec&list=RDq2dMSfmUJec&t=34

Image courtesy of Shutterstock

Tuesday, May 29, 2018

328-G Rollovers – what’s exempt and what’s not

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/zxI128AOaaE

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

The 328-G rules allow taxpayers to basically roll-over any otherwise taxable asset as part of the concessions. In other words, it is not just capital gains tax assets, it can be trading stock, depreciating assets, and assets on revenue account.

Any tax that would otherwise be triggered in these areas is ignored as part of the 328-G rules. However, the concessions only operate at a federal revenue level, and even then, not across the board.

For example, if you've got GST applicable, which invariably you will, because you'll be a small business turning over less than $2 million, you need to have a strategy to deal with that as GST is not exempted under 328-G.

Stamp duty, as it is state based, is not dealt with at all under 328-G, thus you will need to have a strategy to deal with that.

Land tax is not addressed.

Similarly, payroll tax and any other state taxes are not dealt with at all under the 328-G provisions.

Thursday, May 24, 2018

Not dead yet ** but watch this space following Budget attack on excepted trust income

 View blog- Monty Python - I'm not dead yet by Matthew Burgess

The announcement in the 2018-19 Federal Budget that “the concessional tax rates available for minors receiving income from testamentary trusts will be limited to income derived from assets that are transferred from deceased estates or the proceeds of the disposal or investment of those assets” was for many a surprise.

As is usually the case with Budget announcements attacking perceived arbitrage revenue opportunities, the exact impact of the changes will revolve almost entirely around how the legislation is crafted - the 2017 Budget changes to the small business CGT concessions being a recent a high-profile example of what appeared at announcement to be a narrowly focused change that in fact has proven to be significantly wider.

Thus, advisers in the estate planning industry should likely be concerned as to what the Government means by suggesting that the mischief to be addressed is “that some taxpayers are able to inappropriately obtain the benefit of (a) lower tax rate by injecting assets unrelated to the deceased estate into testamentary trusts.’’

In turn, the Budget statement that the “measure will clarify that minors will be taxed at adult marginal tax rates only in relation to income of a testamentary trust that is generated from assets of a deceased estate (or the proceeds of the disposal or investment of these assets)” also has the distinct prospect of having much wider consequences than might otherwise be expected.

Excepted trust income rules currently 

Previous posts have explained that pursuant to Div 6AA of the ITAA 1936 and, in particular, subs 102AG(2)(a)(i), excepted trust income is the amount which is assessable income of a trust estate that resulted from a will, codicil or court order varying a will or codicil.

Where income is excepted trust income and it is distributed to minors, those minors are taxed as adults, instead of the normal penal rates that otherwise apply to unearned income.

Currently, subss 102AG(2)(a)(i) and 102AG(2)(d)(i) of Div 6AA make it clear that the provisions are not limited to income derived from estate assets.

Importantly, the subsections only prescribe how the trust estate is deemed to have arisen and do not place any limitations on the management of the trust estate, or on the assets which the trust may hold.

The fact that estate assets forming part of the trust estate may be realised and others may be acquired has no implications on the validity of a testamentary trust, nor the ability of the trustee of a testamentary trust to treat the income as excepted.

Similarly, if the trustee decides on behalf of the testamentary trust to borrow money and acquire assets which earn income, then it has generally been accepted that Div 6AA applies to that income.

Current limitations 

Section 102AG(3) currently contains an exception for non-arm’s length arrangements. In particular, it provides that if any 2 or more parties to:

  1. the derivation of the excepted trust income mentioned in subsection (2); or 
  2. any act or transaction directly or indirectly connected with the derivation of that excepted trust income, were not dealing with each other at arm’s length in relation to the derivation of income, or in relation to the act or transaction, the excepted trust income is only so much (if any) of that income as would have been derived if they had been dealing with each other at arm’s length in relation to the derivation, or in relation to the act or transaction. 
Furthermore, s 102AG(4) provides that an amount will not be treated as excepted trust income if it was derived by a trustee as a result of an agreement entered into for the purpose of securing that the income would be excepted trust income.

Furse’s case 

The Trustee for the Estate of the late AW Furse No 5 Will Trust v FCT (1990) 21 ATR 1123 (“Furse”) is one of the few reported decisions dealing with Div 6AA.

In this case, a will made in July 1974 established multiple testamentary trusts, each with capital of $1 after the testator passed away shortly after making the will.

A trustee was then appointed over one of the testamentary trusts and proceeded to borrow small amounts of money and acquire a unit in a unit trust.

The ATO did not consider the income from the unit as excepted income and argued that the income derived by the trustee was not assessable income of a trust estate that “resulted from a will.”

Justice Hill rejected the ATO’s argument and held that it was only necessary that the parties be dealing on an arm’s length basis, and that it was not necessary that they also be arm’s length parties.

The Court noted that provided the trust estate was created by a will and the arm’s length test was satisfied, then any income of a testamentary trust would be considered as excepted trust income.

What might new rules attack? 

Taken at face value, the new rules will simply create an obligation on trustees to track the source of assets in a testamentary trust and ensure the income to be treated as excepted trust income is sourced from assets passing directly to the trust from the willmaker.

In theory, this type of probation would be similar to what is currently the case with post death testamentary trusts (often referred to as estate proceeds trusts) set up to comply with s 102AG. Indeed, this style of tracking mechanism is analogous to that which trustees are meant to undertake in relation to ensuring trust assets vest within the perpetuity period.

Thus, any further assets gifted or settled on a testamentary trust, other than by the willmaker, would be segregated from excepted trust income purposes.

Depending on the drafting approach adopted, however, some areas that may be impacted (potentially unintentionally) by the new rules include:
  • Assets that form part of a testamentary trust that are not owned outright by the willmaker (that is, are subject to existing borrowings) – what happens as the level of debt changes? 
  • Even if assets that initially form part of the testamentary trust are debt free - what are the consequences if further assets are acquired using the initially contributed assets as security? 
  • If an asset class at the date of death of the willmaker is cash at bank – does the tracing of the assets acquired continue indefinitely? 
  • If assets acquired using borrowings no longer generate access to excepted trust income – is it appropriate that tax laws essentially directly impact the investment decisions of trustees? 
  • If an asset acquired is itself tax advantaged (one obvious example in that regard being insurance bonds) - how will the proceeds from the investment be treated? 
  • In relation to shares - how will dividend reinvestment arrangements be treated? 
  • How will assets that are acquired by the testamentary trust as a consequence of the willmaker’s death, however, are not directly from the willmaker, be treated – for example will superannuation death benefit payments and insurance policy payouts to an estate be considered to be legitimate capital from which to source excepted trust income? 
  • Particularly for those in life spouse relationships, it is common for testamentary trusts to be established under each person’s will and for there to be a subsequent merger of the trusts some years later – what will be the approach in relation to wealth that passes to a testamentary trust sourced from another testamentary trust? 

In conclusion: some further questions 

Testamentary trusts (and, in turn, access to excepted trust income) only arise because someone has died.

Traditionally, in Australia, death has not been seen as a tax planning strategy.

The 2018 Budget announcement arguably changes the position in this regard.

If there is, in fact, widespread abuse of the existing rules in this area, it must be asked why there is essentially only one reported case in the area that is now over 25 years old and remains unchallenged, and in turn what aspects of the offensive arrangements are not already addressed by s 102AG itself or, in the alternative, Part IVA.

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

** For the trainspotters, ‘Not dead yet’ is a quote from the ‘Bring Out Your Dead’ scene in Monty Python’s ‘The Holy Grail’.

Tuesday, May 22, 2018

Deductible debt, trust cloning and 328-G rollovers

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/S8gy1ZMhIzA

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

One factual scenario we have explored utilising the 328-G rollover concessions involves where there is an original trust and a cloned trust and the transfer of assets between the two trusts will satisfy all of the rules that need to satisfied.

If having setup the new trust, it goes to the bank to borrow money, it is necessary to analyse what that money is being used for to determine if any interest expense is deductible.

If the debt is to fund the acquisition of the business from the original trust, that is, the original trust is selling the business to the cloned trust, then the nature or the purpose of the borrowings is going to be income generating.

That is, the debt expense will be deductible.

The cash flow will be funds coming from a third party bank into the cloned trust, and then as part of the sale transaction, the payment is made to the original trust.

The cash received by the original trust will because of the 328-G provisions, be a tax free receipt.

At that point, the original trust can essentially make a form of ‘eligible termination payment’ to the ultimate controllers of the original trust.

Monday, May 21, 2018

myprosperity and View Legal partner to offer automated estate planning services

View blog myprosperity and View Legal partner to offer automated estate planning services by Matthew Burgess

myprosperity, Australia’s leading personal wealth portal, is partnering with Australian estate planning firm, View Legal to provide free, standard wills.

A personal wealth portal, myprosperity is a white-label desktop and mobile app that advisers and accountants can enable for their clients. The platform provides a consolidated, real-time view of a client’s entire financial world, thanks to live integrations with leading financial services providers.

When enabled by an adviser, myprosperity’s estate planning functionality will allow a client to generate a standard View Legal will and automatically populate the relevant data from their personal wealth portal, including all their assets and liabilities. This legally binding will is then stored on myprosperity, delivering greater utility through the portal.

Chris Ridd, CEO of myprosperity, said of the partnership “It’s estimated that nearly 50% of Australians will die without a will, and our own data shows that over 70% of myprosperity clients do not have an up-to-date will. Yet predictions say $2.4 trillion in wealth will be passed on over the next three decades.”

Ridd continued “View Legal are recognised experts in estate planning and their standard will is miles ahead of any equivalent that can be found commercially. By leveraging their expertise to provide a standard, pre-populated will, we’re helping our clients to achieve peace of mind and taking our first step towards redefining estate planning.”

Matthew Burgess, Founder of View Legal, said “Estate planning and wills especially haven’t changed much in the last hundred years. View Legal has a history of leveraging technology to solve complex legal issues like estate planning. Together with our technology partner, NowInfinity we’ve designed a technology solution that will break down some of the traditional barriers of entry that have resulted in so many Australians not having a valid will. To be able to share this journey with myprosperity is exceptionally exciting for us.”

About myprosperity
myprosperity is a cloud-based personal wealth platform that makes it easy for accountants and advisers to help their clients get their financial world – sorted. Available on desktop and as a mobile app, myprosperity is a whitelabel wealth portal that boasts live data feeds and digital doc signing, as well as budgeting, cashflow and goal setting tools for an integrated all-in-one approach to personal finance. Founded in 2011, the company is now the leading personal wealth platform in Australia, with over 550 adviser partners and 23,000 end users.

About NowInfinity & View Legal
NowInfinity is a leading financial technology company providing a raft of solutions for accountants, bookkeepers, financial planners, and lawyers. In collaboration with View Legal, NowInfinity can cover the myriad legal solutions required across all aspects of financial advice, compliance and structuring. The outcome of this relationship is a cost-effective proposition that empowers accountants, financial advisers and other advice practitioners to transform their client relationships, deliver better service, client centric outcomes – all the while saving time and money.

View Legal is built around the disruptive mantra of being a law firm that friends would choose. To achieve this vision, View Legal has fundamentally and radically revolutionised access to quality legal advice, in the highly specialised areas of structuring, tax, trusts, asset protection, business sales, estate and succession planning. Using technology as an enabler, View Legal has taken each of the tenets of the traditional delivery model – and turned them on their heads.

To learn more about this exciting collaborative arrangement as well as how myprosperity can assist you in creating lifelong engagement with your clients, be sure to attend the free myprosperity 2018 Roadshow commencing on 30th May, which will include more details about the estate planning product launch.

Media Contacts
Alice Chauvel, Marketing Manager, myprosperity - alice.chauvel@myprosperity.com.au; 0416 798 205
Tracy Williams, COO, NowInfinity – tracy@nowinfinity.com.au; 0437 647 937

Tuesday, May 15, 2018

PRENUPS VS. WILLS – winner takes all? **

View blog PRENUPS VS. WILLS – winner takes all by Matthew Burgess

Previous posts have explained the various aspects of binding financial agreements (often referred to as 'prenups').

On a number of occasions recently, we have had cause to review binding financial agreements in the context of wider estate plans, and in particular, have had to consider whether, in the event of a death of a spouse, the binding financial agreement takes priority or whether the will applies.

As is the case in many estate planning areas, the rule of thumb to remember is that the issue must always be reviewed on a case by case basis.

This said, generally, a prenup should at least expressly set out whether it is intended to apply on the death of either spouse.

Ideally, the document should be crafted in any event to complement the provisions of the estate plan.

In some situations the provisions can also regulate what should occur if one of the spouses seeks to challenge the provisions of their former spouse’s estate plan.

** For trainspotters, ‘Winner takes it all’ is song by Abba from 1980, learn more here –


Image courtesy of Shutterstock

Tuesday, May 8, 2018

Half your age, plus seven

Matthew Burgess Half your age, plus seven

Many family lawyers will relay that there appears to be a disproportionate level of relationship difficulties where there is a significant gap in the ages of the spouses - hence the above quoted rule of thumb to ensure the age gap is no more than half you age, plus seven years, see - https://commons.wikimedia.org/wiki/File:Half-age-plus-seven-relationship-rule.svg

In Alderton v C of T [2015] AATA 807) the rule of thumb was breached by around 10 years (the de facto husband, Trapperton, was 42 to and the de facto wife, Alderton, was 18 when the relationship commenced).

Alderton was financially dependent on Trapperton.

For some years, a trust that Trapperton was trustee of made distributions to Alderton. Alderton had no knowledge of the existence of the trust nor that withdrawals from her debit card and online banking were in fact trust distributions.

After the relationship ended, a trust return was filed that based on the distributions caused an assessment for Alderton.

Alderton then, some years later, attempted to disclaim the income she had, unwittingly, received from the trust.

The Tax Office, and in turn the court, ignored the attempted disclaimer and Alderton remained liable to pay the tax assessed.

The fact that Alderton had no knowledge of the conduct or operations of trust was irrelevant as to her liability to pay tax on the distributions she had effectively been made presently entitled to.

As set out in earlier posts (see for example - http://blog.viewlegal.com.au/2014/10/some-ramifications-of-failed-trust.html) in order for a disclaimer to be made retrospectively, it must be done so within a reasonable period of time from the beneficiary first becoming aware of the relevant interest that they wish to disclaim.

The disclaimer must also be an absolute rejection of the gift. Here, although the disclaimer was likely made 'in time', Alderton had in fact used the funds distributed to her and was therefore unable to provide an effective disclaimer.

This conclusion stood despite the court questioning the 'discreditable' conduct of the trustee in taking advantage of Alderton's naivety.

Image courtesy of Shutterstock

Tuesday, May 1, 2018

Can trusts last forever now? **

As set out in an earlier post, 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/iIjJGoq7L1c

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

Following on from an earlier post ((Don’t ask me) why do trusts have vesting dates? **) it is useful to understand that the majority of Australian jurisdictions decided that a life in being plus 21 years was too complicated. Instead, the rule was replaced with a statutory provision which allows up to 80 years as the maximum length of trust in Australia.

As mentioned in an earlier post, there are exceptions to this rule. In relation to discretionary trusts, the highest profile exception is in South Australia where the rule has effectively been abolished.

Another exception is in relation to superannuation funds.

Superannuation funds are simply a form of trust instrument, although a highly regulated form of trust due to the Superannuation Industry Supervision Act which imposes a whole range of specific rules.

In relation to the core of the underlying structure of a superannuation fund however, it is simply a trust structure. Importantly however there is no concept of an ending period. In other words, in theory superannuation funds can last forever.

There are obviously tax issues for self-managed superannuation funds meaning maintaining the structure indefinitely may not be a particularly smart idea. However in the context of trust vesting, superannuation funds are a clear and obvious exception to the vesting rules.

** For trainspotters, ‘Forever now’ is song by legendary Australian band Cold Chisel from 1982, learn more here – https://youtu.be/Hhnp3td-UHU

Tuesday, April 24, 2018

Does it get you where you wanna go … with a warranty (and indemnity)? **

View blog Does it get you where you wanna go … with a warranty (and indemnity)? ** by Matthew Burgess

Previous posts have considered various aspects of warranties and indemnities (see -What is a warranty?Indemnities).

Generally, the scope of recovery and damages that may be obtained will be greater where an indemnity is provided.

This is because an indemnity is effectively a promise to either reimburse or make good relevant issues if they arise.

Furthermore, indemnities:
  1. Do not require the person giving the indemnity to have actually caused the loss – in other words, regardless of how the loss arises, liability will be triggered. 
  2. Common law rules that normally limit the scope of liability, such as remoteness or an obligation to mitigate losses, do not apply in relation to indemnities. 
In contrast, a warranty only provides a promise that certain statements are correct. Practically this means:
  1. A party seeking to claim in relation to a breach of warranty must do so by seeking damages.
  2. The common law principles mentioned above of remoteness and an obligation to mitigate potential losses do apply. 
** For trainspotters, ‘does it get you where you wanna go ... with a warranty’ is a line from a song named ‘Days That Used To Be’ by Neil Young and Crazy Horse from their seminal 1990 album ‘Ragged Glory’ – listen here – www.youtube.com/watch?v=SQeM2yLSiss

Image courtesy of Shutterstock

Tuesday, April 17, 2018

View University launches with 6 courses in estate planning and trusts

At View, we are passionate about providing access to technical content across a range of formats, including traditional products, such as textbooks and seminars, together with online platforms such as webinars, smart phone apps and podcasts.

This week we are excited to officially launch 6 university level courses, namely –
  1. Introductory Estate Planning 
  2. Intermediate Estate Planning 
  3. Advanced Estate Planning 
  4. Trust structuring 
  5. Taxation of trusts 
  6. The 7 Steps to Success – Implementing View’s Turn-key Adviser Facilitated Estate Planning Platform
Each course is designed to be relevant for all advisers including accountants, financial advisers and lawyers, other than lawyers who have specialised in the trusts and estate planning space for many years.

With 35 discrete learning modules and over 15 hours of technical content in each course, including webinars, vidcasts, and technical papers, the university level courses are the first of their kind in the Australian marketplace.

For those advisers who can not self assess their professional development compliance, all courses have received accreditation from the Financial Planning Association (FPA), namely - accreditation number 008722 for over 60 hours .

To learn more about each course and View University more generally, see - http://viewuni.com/

For your chance to receive free access to a course, simply like or comment on this post on LinkedIn within the next seven days and we will randomly select one winner and contact you directly.

Tuesday, April 10, 2018

What is the Four Eye principle?

View blog What is the Four Eye principle by Matthew Burgess

Many years ago, our business implemented what we refer to as the 'four- eye' process.

Essentially, this control process is designed to ensure that at least two people review every piece of correspondence or work performed, even in what would otherwise be considered to be a 'simple' situation.

In more complex scenarios, we often have a six or even eight-eye review process which can often involve a peer review of certain technical issues by lawyers who might in fact specialise in other areas.

While our four-eye process does not eliminate all mistakes, it certainly provides an excellent safety mechanism in the vast majority of cases.

It also aligns with one of our key mantras – measure twice; cut once.

Many mantras we live by at View are profiled in my business book 'Laws for Life'.

A link to your (free!) copy of this book is below -

Password: laws4life

Please delete any pre-populated password.

Matthew Burgess Laws for Life free book

Image courtesy of Shutterstock

Tuesday, April 3, 2018

Accessing excepted trust income - just like working 9 to 5 **

View blog Accessing excepted trust income - just like working 9 to 5 by Matthew Burgess

The last two posts have explored the more concessional than previously expected approach to superannuation proceeds trusts (SPT) by the Tax Office (see - Just Can't Get Enough tax wins ** and Don't Stop Believin' - Tax Office & superannuation proceeds trusts **).

In Private Binding Ruling (see Authorisation Number 1051187537572) the Tax Office provides further clarity about how an SPT needs to be structured in order to ensure infant beneficiaries can access the excepted trust income regime. As usual if you would like a copy of the Private Ruling please contact me.

In particular, the Tax Office states that in order for an SPT to satisfy the conditions to access excepted trust income and the provisions in sections 102AG(2)(d)(ii) and 102AG(2A) of the Tax Act, the following criteria must be met -
  1. the key beneficiaries must be infant children. 
  2. the purpose of the SPT must be to provide for the maintenance, education and benefit of the children. 
  3. the children must be the only capital beneficiaries of the SPT. 
  4. any power to appoint additional beneficiaries must be restricted to ensure any appointment will meet the requirements of sections 102AG(2)(d)(ii) and 102AG(2A) of the Tax Act. 
  5. the income of the SPT can only be accumulated for, or distributed to or for, the benefit of the children (although based on the Private Ruling mentioned in the post 2 weeks ago, it is likely that (for example) the surviving parent can also be an income beneficiary). 
  6. property transferred to the SPT for the benefit of each of the children will be held exclusively for each of the children and can be distributed to only that child during or at the end of the SPT. Again, based on the Private Ruling mentioned in the post 2 weeks ago, it is likely that on vesting of the SPT, if the relevant children die before the SPT vests, the trust fund can be held for the legal personal representatives of the children. 
** For trainspotters, in 1980/1981, when much of the original thinking around these rules was developed, the Dolly Parton movie and song 'Working 9 to 5' were big hits. 'Working 9 to 5' being used as a reference to having to follow the rules set by the 'machine' - hence the reference in the title to this post. Given the likelihood many readers of today's post were not born in 1981, further learning is available here -

Movie - https://en.wikipedia.org/wiki/9_to_5_(film)

Image courtesy of Shutterstock

Wednesday, March 28, 2018

Your sex is on your timesheet** as View announces abandoning of abandoning of timesheets

View blog Your sex is on your timesheet as View announces abandoning of abandoning of timesheets by Matthew Burgess

View has confirmed the launch of a game changing app that guarantees time recording 24 hours a day.

Leveraging machine learning, AI, block chain, VR and patented algorithms, View Legal is excited to announce today the abandoning of its previous abandonment of timesheets.

Arguably, the single biggest criticism of timesheets has been their complete inability to track all chargeable and non-chargeable time throughout an entire day.

Now, thanks to a NextGen app developed by View Legal, with the mentoring of a number of key thought leaders in the VeraSage community, the heritage issues with time recording have been completely solved using an agile ideation of core competency capabilities and lean design thinking.

The app, which in its first market iteration will only be available via smartwatches and View Goggles, uses bespoke technology to analyse brain activity every six minutes all day, every day.

The sophisticated algorithms underpinning the app deconstruct each of the 1,440 blocks of potentially chargeable time each 24 hour period via a cloud-based application that integrates seamlessly into the firm’s practice management ecosystem automatically data matching the brain activity with the relevant client matter.

Via a separate API enabled plug-in, the relevant hourly rate is then applied, and the charging of time is instantaneously uploaded to a central client portal allowing real-time invoicing.

Perhaps the most innovative component of the new app however is that because all team members will be immersed in the identical product piece, blended billing rates will also for the first time be able to be captured and applied with complete and absolute integrity.

The possibilities for increased utilisation and leveraged rates are exponential given the app’s ability to unlock access to chargeable units during activities previously thought to be impossible using heritage time tracking solutions.

The app, partially inspired by last year’s launch of Time$hits, shows how quickly technology is moving in the professional services space. The ability to only track toilet time is now ‘so 2017’ in the shadow of View’s new app.

Firms who have embraced the new app are already raving about huge spikes in chargeable units now that time is being recorded during activities as diverse as yoga, running, meditation and sleeping.

According to one BigLaw managing partner, the ability to compare the performance of lawyers in terms of the number of chargeable units they can rack up while doing activities otherwise ostensibly completely unrelated to the traditional definition of chargeable time has been a paradigm shift for bottom-line profits.

Indeed, one managing partner, who has asked to remain anonymous, said they have introduced a range of additional criteria to weave into the annual performance review for lawyers and partners. The hope - that within three years, they will have minimum performance requirements for sleep generated chargeable units based on the benchmarking that is automatically created by the app each week.

The managing partner went on to say that the definition of nirvana for any equity partner is to be making money while they sleep, and this new app delivers on that dream.

The same managing partner also dismissed allegations that first appeared recently in publications such as ‘Roll on Friday’ that they would also be demanding a minimum level of chargeable time being recorded during ‘’adult only’’ activities, claiming that the app was not yet sophisticated enough to determine whether the adult only activity involved more than one party, meaning that some BigLaw partners may have an unfair advantage.

This said, future generations of the app are likely to go to this level of insight with the beta testing in a controlled group of senior lawyers that have had a small microchip implanted directly into their brains; thereby eliminating the need to rely on a wrist device that may create misleading readings during certain forms of adult only activity.

The App is exclusively available for purchase using Bitcoin or Ethereum and to learn more, click here: https://youtu.be/leewtnS6Eys

** For trainspotters, the title of today’s post is inspired by the well-known Kings of Leon song ‘Sex on Fire’, see here: https://www.youtube.com/watch?v=RF0HhrwIwp0

PS: Please note that the app will be formally launched shortly before midday on Sunday 1 April 2018, at which time View will re-embrace filling in timesheets; despite its previous embracing of the #burnthetimesheet mantra.

Tuesday, March 27, 2018

Just Can't Get Enough tax wins **

Matthew Burgess Just Can't Get Enough tax wins

Last week's post explored the more concessional than previously expected approach to superannuation proceeds trusts (SPT) by the Tax Office (see - Don't Stop Believin' - Tax Office & superannuation proceeds trusts **).

In another, possibly related, Private Binding Ruling (see Authorisation Number 1051187537572) the Tax Office provides further clarity about how an SPT can ensure infant beneficiaries access excepted trust income. As usual if you would like a copy of the Private Ruling please contact me.

As mentioned last week, the Tax Office accepts that an SPT can still access excepted trust income where the relevant superannuation death benefit is not paid directly to the deceased member's estate, but instead to their surviving spouse.

Importantly however, as is the case with estate proceeds trusts (to learn more about this structure see our previous post here - Testamentary trusts - is it ever too late?), the amount of income that is excepted trust income is limited to the amount of income that would have flowed to the child from property that would have devolved on the child from the estate of the deceased person under the laws of intestacy (see section 102AG(7) of the Tax Act).

In other words, the Tax Office essentially treats the superannuation death benefit as if it formed part of the estate of the deceased person. This means that in states such as NSW and Victoria the strategy is likely to be unavailable for tax planning purposes given that in those states infant children are not entitled to anything on intestacy if there is a surviving spouse.  

In the Private Ruling the Tax Office also confirms that -
  1. in order to access the excepted trust income regime, the infant beneficiary of the SPT must (pursuant to the terms of the trust deed) acquire the trust property (other than as a trustee) when the trust ends (as mandated by section 102AG(2A) of the Tax Act). 
  2. excepted trust income is only available for the SPT to the level that would have been derived had the parties been dealing on an arm's length basis (see section 102AG(3) of the Tax Act). Importantly, this requirement is not that the parties themselves have to be arm's length; rather they must act on an arm's length basis. 
  3. the income of an SPT will not be excepted income if it is derived, directly or indirectly, under or as a result of an agreement that was entered into or carried out for the purpose, or for purposes that included the purpose, of securing that the assessable income would be excepted trust income. However, if the purpose of deriving excepted trust income is no more than merely incidental, then the purpose is disregarded and the income may still be excepted (see sections 102AG(4) and (5) of the Tax Act). 
** For trainspotters, in 1981, when much of the original thinking around these rules was developed, the Depeche Mode song 'Just Can't Get Enough' was one of the hits of the year. Given the likelihood many readers of today's post were not born in 1981, further learning is available here - https://www.youtube.com/watch?v=_6FBfAQ-NDE

Image courtesy of Shutterstock