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LAW UPDATES 

TIME TO REVIEW THE TRUST DEED OF YOUR DISCRETIONARY TRUST

A timely reminder by Kamran Khalid.     Kamran can be contacted on kkhalid@mcwlaw.com.au

 

As you might be aware, the NSW Parliament has extended deadline for trust deeds of discretionary trusts to be amended to exclude foreign persons as beneficiaries. The deadline is now midnight on 31 December 2020.


If the trust deed of a discretionary trust, which has acquired residential land in NSW, has not been amended to irrevocably exclude foreign beneficiaries before the above deadline, the trustees of such trusts will be liable for:


(a) surcharge stamp duty on any transfers of dutiable property that have occurred or occur prior to 31 December 2020; and
(b) surcharge land tax in respect of the 2017, 2018, 2019 and/or 2020 land tax years.

Transitional provisions allow for the refund of any surcharges already paid if the relevant amendments are made before the approaching deadline.

Background

Since 21 June 2016, if a foreign person has purchased residential property in NSW they are liable to pay a stamp duty surcharge (currently, 8% of the dutiable value). Additionally, any foreign person who holds residential land in NSW after that date, is liable to pay a land tax surcharge (currently, 2% of the land tax value of the land).
Generally, an individual is a foreign person if they are not:


(a) an Australian citizen; or
(b) a permanent resident who has been in Australia for at least 200 days in the preceding 12-month period.


Any companies and trusts in which a foreign person holds substantial interest (i.e. 20% or more) are also considered foreign persons. For discretionary trusts, a trustee is a foreign person if the trust deed does not prevent a foreign person being a beneficiary, even if there are no foreign persons who are current beneficiaries of the trust.

This is because any person who may benefit from a discretionary trust is considered as having the maximum interest in the trust (i.e. 100%). Even if there are currently no foreign persons named as beneficiaries or potential beneficiaries under the trust deed, unless there is an irrevocable prohibition inserted into the trust deed that prevents a foreign person benefitting from the trust, the trustee will be liable for the surcharges.

Further, the surcharges also apply to any indirect interests held by foreign persons. For instance, if a foreign person (including the trustee of a discretionary trust that is a 'foreign person') acquires or holds 20% shares in a company, or units in a unit trust, which owns residential land in NSW but is not itself a foreign person entity, that entity will be considered a foreign person for the purposes of duty and land tax surcharges.

Time is short. Our team at MCW Lawyers is well placed to provide advice and help you make the necessary amendments to the trust deeds of discretionary trusts to comply with Revenue NSW's guidelines.
Should you need assistance with amendments to your trust deed, please get in touch with us.

 

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MORATORIUM EXTENSION - Insolvency relief until 31 December 2020

If you own a small business, you may be interested in reading about the Federal Government's extension of insolvency relief until 31 December.

On 7 September, the Federal Government announced that it would be extending the moratorium on insolvent trading liability until 31 December 2020. This extension was also applied to other financial measures introduced in response to COVID-19, including the changes to statutory demands and bankruptcy notices providing some leniency to debtors.

By allowing companies to delay paying creditors and continue trading, these measures provide some security for businesses needing more time to adjust in the uncertain economic climate. While it represents a safety net for businesses struggling to bounce back, it also risks allowing unprofitable and unworkable businesses to incur additional debts which they will never pay off. Currently, there is little recourse for creditors other than halting supply.

Despite these measures, experts are expecting to see a significant increase in insolvencies in 2021. Going forward, it will be necessary to evaluate whether the continuation of these relief measures will serve as a boost or a detriment to the economy.  

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Planning for the future

Estate planning is a lot more involved than just making sure you have a Will and maybe a Power of Attorney.  It means regularly reviewing your assets and liabilities and the ownership structure of your personal and business assets as well as where you really want them to go when you pass away. Questions to consider include - 

  • Who owns the home in which you live? Are your assets held in one name or jointly with someone else?
  • Do you have a superannuation fund? Is it a self managed fund?  If so, who is the trustee?  Who will control it when you have gone?  Are you able to nominate your beneficiaries? 
  • Do you own a business? Is it your intention that it remain in the family, or do you have a plan to sell it?  How do you pass it on to family members or sell it on to employees?  Do you have a business succession plan?
  • What happens when one of your children or close relative works in the business (or runs the family farm)? Can you keep the business in the family somehow and still do justice to the other family members?
  • Do you have a family trust? If so, who is the trustee?  Is it a company or is it a person?  Is it a unit trust or a discretionary trust?  Do you actually have an interest in the fund or are you only one of the potential beneficiaries?  Do you control the trustee?  Who is to be the trustee after you?  How can you best ensure the trustee manages the trust in a way you would approve of?
  • How do you make a Will that does what you want it to do, but at the same time is unlikely to be challenged by disgruntled family members or other potential beneficiaries?
  • Should you divest yourself of assets now, ie before you reach retirement age? What are the pros and cons?
  • Can you somehow protect or quarantine your assets to ensure that they ultimately go to your children rather than to a future spouse or worse still, the children of that future spouse?
  • If you leave assets to your children, can you protect them from claims being made in the future by their own spouses in the event they separate or divorce?
  • If you have business assets or a self managed super fund it is often best for your accountant and solicitor to work together to assist you to develop a plan that is both financially and legally beneficial to you and your beneficiaries. 
  • You cannot rule from the grave but thinking about the problems makes it easier to formulate a solution and to devise a sensible plan that is fair to everyone.

At MCW Lawyers we can assist you with any further information or guidance

regarding these arrangements.