Following last week’s post, we had a number of people contact us in relation to the, withdrawn, ATO Discussion Paper on business succession arrangements (i.e. buy-sell agreements).
As mentioned in last week’s post, the ATO has unequivocally stated its belief that the Discussion Paper is not current and that advisers in this area should be deterred from relying on it.
This said, the Discussion Paper remains (even 11 years after its initial circulation) the only comprehensive attempt by the ATO to articulate its view of the various business succession models.
For those interested in the issues addressed by the Discussion Paper, please email me.
Please note the copy of the paper I have access to is shown in 'marked up' format as this was the final version released by the ATO before it was withdrawn from circulation.
Until next week.
Monday, March 28, 2011
Monday, March 21, 2011
Insurance funded buy-sell arrangements - ATO commentary
A number of earlier posts have considered various taxation aspects of insurance funded buy-sell arrangements.
Some minutes recently released from the National Tax Liaison Group meeting towards the end of last year provide an interesting insight to the latest ATO views in this area.
For those who have not seen a full copy of the minutes and would like a copy please email me.
As you will see, in summary:
1. The status of taxation ruling on absolute entitlement (TR2004/D25) remains unclear.
2. The ATO considers its finalisation intricately linked to how it will deal with bare trusts, which again remains an unresolved issue.
3. The ATO confirms that the product ruling released last year in relation to one provider’s insurance trust arrangement is based entirely on the assumption that absolute entitlement was created. As my post from last year indicated, this assumption may be an unwise one to make given the ATO’s apparent attitude in this area.
4. While the ATO is flagging that they will further consider providing appropriate guidance, they have specifically confirmed that the Discussion Paper from 2000 on business succession arrangements cannot be considered current.
Until next week.
Some minutes recently released from the National Tax Liaison Group meeting towards the end of last year provide an interesting insight to the latest ATO views in this area.
For those who have not seen a full copy of the minutes and would like a copy please email me.
As you will see, in summary:
1. The status of taxation ruling on absolute entitlement (TR2004/D25) remains unclear.
2. The ATO considers its finalisation intricately linked to how it will deal with bare trusts, which again remains an unresolved issue.
3. The ATO confirms that the product ruling released last year in relation to one provider’s insurance trust arrangement is based entirely on the assumption that absolute entitlement was created. As my post from last year indicated, this assumption may be an unwise one to make given the ATO’s apparent attitude in this area.
4. While the ATO is flagging that they will further consider providing appropriate guidance, they have specifically confirmed that the Discussion Paper from 2000 on business succession arrangements cannot be considered current.
Until next week.
Monday, March 14, 2011
Do prenups actually work?
The above question was posed to me during the week and, unfortunately, when I was told to make my answer succinct, the only thing that easily came to mind was 'it depends'.
Many advisers will be aware that prenups (or as they are more technically termed in Australia 'binding financial agreements') have been available for around 10 years now.
There have been a number of changes to the way in which the rules in this area work and the most significant of these changes occurred towards the end of last year.
While there were a number of quite heavily publicised cases where what otherwise appeared to be binding agreements were held to be invalid, the changes made towards the end of last year have generally been seen to be positive steps to ensure that disgruntled spouses cannot extract themselves from previously made promises on the basis of a legal technicality.
Until next week.
Many advisers will be aware that prenups (or as they are more technically termed in Australia 'binding financial agreements') have been available for around 10 years now.
There have been a number of changes to the way in which the rules in this area work and the most significant of these changes occurred towards the end of last year.
While there were a number of quite heavily publicised cases where what otherwise appeared to be binding agreements were held to be invalid, the changes made towards the end of last year have generally been seen to be positive steps to ensure that disgruntled spouses cannot extract themselves from previously made promises on the basis of a legal technicality.
Until next week.
Monday, March 7, 2011
Witnessing powers of attorney
Following last week’s post, I had a number of people raise concerns about the witnessing requirements for powers of attorney.
Unfortunately, this is yet another example of inconsistencies between each Australian state.
Certainly, in each state, legal practitioners are authorised witnesses for most forms of powers of attorney.
Having this said, documents that are directly related to medical issues can normally only be witnessed by a medical practitioner.
In some states, the financial related power of attorney documents can be witnessed by a relevantly large range of authorised signatories.
Ultimately, as I recommended to the advisers who contacted me, the safest pathway is to carefully read the relevant documentation to ensure all witnessing provisions are complied with. While there are numerous inconsistencies between the various states, each state does at least set out in some detail the witnessing requirement for each document as part of the standard government form.
Until next week.
Unfortunately, this is yet another example of inconsistencies between each Australian state.
Certainly, in each state, legal practitioners are authorised witnesses for most forms of powers of attorney.
Having this said, documents that are directly related to medical issues can normally only be witnessed by a medical practitioner.
In some states, the financial related power of attorney documents can be witnessed by a relevantly large range of authorised signatories.
Ultimately, as I recommended to the advisers who contacted me, the safest pathway is to carefully read the relevant documentation to ensure all witnessing provisions are complied with. While there are numerous inconsistencies between the various states, each state does at least set out in some detail the witnessing requirement for each document as part of the standard government form.
Until next week.
Monday, February 28, 2011
How many powers of attorney does it take to create authority?
With increasing regularity, we are seeing issues arise in relation to the authority for people to act under powers of attorney.
Like many laws, the power of attorney legislation is frustratingly inconsistent, with different acts applying in each Australian state and territory.
In theory, there is also legislation requiring each jurisdiction to recognise the documentation prepared in each of the states. In practice however, it is often extremely difficult to convince third parties that a power of attorney document that looks completely different to what they normally expect to see is in fact legally binding.
One solution (although admittedly not a particularly efficient one) we are seeing more people implement is to have a separate power of attorney prepared under each jurisdiction where they are likely to spend significant periods of time. While not a perfect solution, this approach can provide significant practical benefits.
There is an ongoing push, as part of having uniform succession laws across Australia, for the power of attorney laws to also be made consistent. The timeline for achieving such an outcome is difficult to predict given the number of vested interests involved.
Until next week.
Like many laws, the power of attorney legislation is frustratingly inconsistent, with different acts applying in each Australian state and territory.
In theory, there is also legislation requiring each jurisdiction to recognise the documentation prepared in each of the states. In practice however, it is often extremely difficult to convince third parties that a power of attorney document that looks completely different to what they normally expect to see is in fact legally binding.
One solution (although admittedly not a particularly efficient one) we are seeing more people implement is to have a separate power of attorney prepared under each jurisdiction where they are likely to spend significant periods of time. While not a perfect solution, this approach can provide significant practical benefits.
There is an ongoing push, as part of having uniform succession laws across Australia, for the power of attorney laws to also be made consistent. The timeline for achieving such an outcome is difficult to predict given the number of vested interests involved.
Until next week.
Monday, February 21, 2011
ATO attacks Division 7A planning strategy
In what is only a slight variation of the Division 7A planning approach of trusts distributing income to a limited partnership, in order to attain a capped rate of tax of 30% and avoid any application of Division 7A on loans made by the limited partnership, the ATO has released a further taxpayer alert last week.
The use of limited partnerships to avoid Division 7A was an approach that the ATO was on record as having concerns about long before the legislation in this area was changed a couple of years ago.
Following the change, a number of advisers were quick to realise that companies limited by guarantee could offer a similar pathway to the limited partnership approach – in other words:
1. Potentially receive trust distributions, with the tax payable on those distributions capped at the corporate rate of 30%.
2. The company limited by guarantee could then subsequently make loans that would not, on the face of the legislation, be caught by Division 7A.
In their first taxpayer alert for the year (taxpayer alert TA2011/1), the ATO lists its concerns with the above strategy.
The full alert is set out at the following link - http://law.ato.gov.au/atolaw/view.htm?docid=%22TPA/TA20111/NAT/ATO/00001%22.
Until next week.
The use of limited partnerships to avoid Division 7A was an approach that the ATO was on record as having concerns about long before the legislation in this area was changed a couple of years ago.
Following the change, a number of advisers were quick to realise that companies limited by guarantee could offer a similar pathway to the limited partnership approach – in other words:
1. Potentially receive trust distributions, with the tax payable on those distributions capped at the corporate rate of 30%.
2. The company limited by guarantee could then subsequently make loans that would not, on the face of the legislation, be caught by Division 7A.
In their first taxpayer alert for the year (taxpayer alert TA2011/1), the ATO lists its concerns with the above strategy.
The full alert is set out at the following link - http://law.ato.gov.au/atolaw/view.htm?docid=%22TPA/TA20111/NAT/ATO/00001%22.
Until next week.
Monday, February 14, 2011
An estate planning tip
Following last week's post, an adviser contacted me to relay a critical issue to keep in mind whenever looking to move an asset (such as a family home) into the name of a spouse.
Broadly the chain of events was as follows:
1. An at-risk spouse moved the family home into her husband’s name paying a substantial stamp duty bill.
2. The husband subsequently died with a very simple 'I love you' will.
3. Under this will, all of the husband’s wealth passed back to the wife.
4. The wife then had to pay another round of stamp duty to move the asset into a family trust.
5. Aside from the double stamp duty bill (and the second bill was actually significantly larger than the first as duty was payable on 100% of the asset with no concessions available), the second transfer to the family trust has also meant that the house will probably be subject to capital gains tax on any subsequent disposal and the 4-year clawback period under the bankruptcy rules starts again from the date of the second transfer.
6. Both of these adverse outcomes could have been avoided if the husband had ensured testamentary discretionary trusts were established under his will.
Until next week.
Broadly the chain of events was as follows:
1. An at-risk spouse moved the family home into her husband’s name paying a substantial stamp duty bill.
2. The husband subsequently died with a very simple 'I love you' will.
3. Under this will, all of the husband’s wealth passed back to the wife.
4. The wife then had to pay another round of stamp duty to move the asset into a family trust.
5. Aside from the double stamp duty bill (and the second bill was actually significantly larger than the first as duty was payable on 100% of the asset with no concessions available), the second transfer to the family trust has also meant that the house will probably be subject to capital gains tax on any subsequent disposal and the 4-year clawback period under the bankruptcy rules starts again from the date of the second transfer.
6. Both of these adverse outcomes could have been avoided if the husband had ensured testamentary discretionary trusts were established under his will.
Until next week.
Subscribe to:
Posts (Atom)