A family trust is a type of trust generally established by someone during their lifetime for the benefit of their ‘family group’. It is a discretionary trust and can be used to hold assets, run a family business, manage certain investments and support beneficiaries.
This type of trust structure is typically established for tax effectiveness and asset protection. That is, having assets in a family trust can help protect certain family assets, for example where there are vulnerable family members (e.g. spendthrifts) to ensure the assets are controlled for their benefit.
A family trust can be established by what is known as a trust deed. This deed sets out the terms and conditions under which the trust operates. The trust deed is signed by the trust’s trustee/s and settlor. The settlor’s involvement is to create the trust and naming the other persons in the trust, such as the trustee/s and beneficiaries.
The trustee or trustees (which may be a corporate trustee i.e. a company) are responsible for the trust and manage the assets in it. The trustee hold assets on trust for the benefit of the trust’s beneficiaries. Part of their role can include making decisions about distributions of income to beneficiaries.
There are several formal requirements of setting up a trust, including tax and duty requirements set out by the ATO and Revenue Office of the State or Territory where the trust is created, as well as payment of any relevant fees.
Some of the advantages of setting up a family trust include the following:
Family trusts can protect assets if members were to go through crisis states, such as bankruptcy or divorce. The trustee typically has discretionary powers (that is a choice about how, for example, distributions of capital and income of the trust are made). So, for discretionary family trusts, the assets are not considered to be owned by the individual beneficiaries, and therefore cannot be claimed by creditors.
In the event of a property settlement under family law, whilst the family law courts have far reaching powers and exclusion cannot be guaranteed, depending on the structuring of the trust, assets held in a family trust may have a higher likelihood of being excluded from being considered part of the matrimonial property pool.
Family trusts also provide a mechanism for the passing of assets to future generations, separate to inheritances through a Will. Therefore, it also has the potential to protects assets from estate contestation, such as challenges to a Will including by family provision claims, as the assets do not form part of the estate.
Further, these trusts can offer tax advantages. As beneficiaries pay tax on any distributions as part of their total income, the family trust can maximise the tax efficiency by distributing proportions in consideration with each beneficiary’s personal marginal tax rates.
The trustee does not have to distribute the same amount to each beneficiary, and distributions can change year to year. Family trusts can also receive discounts on capital gains tax.
As much as there are tax benefits with a family trust, there are also potential disadvantages. For example, if there is any income earned by the trust that is not distributed, it is taxed at the top marginal tax rate. Distributions to minor children are also taxed at the top marginal rate after the relevant threshold is reached.
The trust also cannot allocate tax losses to beneficiaries, although it may be that the tax loss can be carried forward to the next financial year, and apply it to taxable income for that year.
There are also set-up costs, such as professional costs to prepare the trust deed and ASIC fees if a corporate trustee is established, and ongoing costs (e.g. accounting costs) for maintaining and managing the trust. The extent of the costs will depend on the circumstances of each matter, but these costs can be substantially outweighed by the benefits.
The Private Wealth Law Team at Chamberlains Law Firm have legal expertise in a range of trusts and tax issues, including in relation to family trusts. If you have a family trust or are considering establishing one, we are here to help answer any of your legal questions.
This article was prepared with the assistance of Monica Hoswell.
For most farmers, there will be no payment of capital gains tax on the sale of the family farm.
The small business CGT concessions are available to most small farmers because they are eligible for the concessions as their turnover is less than $2,000,000.00 and the value of their net assets after the family home and superannuation is less than $6,000,000.00.
If the farmer’s principal place of residence is at the farm, then the value of 2 hectares of land under the house can be carved out of the sale consideration by claiming the main residence exemption for that component. As long as the house is on the land then the taxpayer can allocate the most valuable two hectares of land to the main residence exemption calculation.
There are four small business CGT concessions.
If the taxpayer is over 55 years of age and has owned the farm for at least 15 years and actively farmed it for at least 7.5 years he or she should not pay CGT on any gain from it’s sale.
It is further possible to contribute amounts to the farmer’s super fund from the small business 15-year superannuation without impacting the non-concessional contribution limits.
A farm is for the small business purposes an active asset if it has been actively held for the purpose of carrying or a business for a total of at least 7.5 years during the test period if the farmer has owned it for 15 years or more or for at least half of the test period, if it was owned it for less than 15 years.
The test period commences from when the taxpayer acquired the asset and ends at the earlier of the CGT event and when the farming activities ceased if it ceased in the 12 months before the CGT event. A taxpayer only pays income tax on 50% of the capital gain on disposal. This concession applies in addition to the general CGT discount. Effectively the assessable gain is reduced by these means to 25%.
A capital gain from the sale of an active asset is exempt from CGT to a lifetime limit of $500,000.00. If the taxpayer is not yet 55 years of age then to be eligible for the concession he or she must pay the exempt amount into a superannuation fund or a retirement savings account.
This concession enables a taxpayer to defer all or part of the capital gains by rolling over the gain if the taxpayer buys a replacement active asset.
This replacement active asset can be purchased up to one year before or up to two years after the last CGT event in the income year for which the taxpayer chooses the rollover.
A farmer purchasing a new farm can thus defer the capital gains by rolling the exempt gain into the purchase of a new farm.
While the whole process is undeniably exciting, it can also be complex. Understanding the sale process can help reduce the stress of the transaction.
Step 1: Initial discussions between the seller and purchaser
Firstly, the parties must come to an agreement on the key terms of the transaction. These include such things as sale price, training periods, completion date, contingent conditions, and what is included in the sale. Often these discussions will be guided by the business sale agent.
It is important that the purchaser conducts due diligence checks on the business to assess the value of the business and discover unknown risks.
Step 2: Drafting the contract.
Once the parties have come to an agreement on the key terms, usually the vendor will engage a solicitor to draft a sale contract.
Step 3: Negotiations
The purchaser should also engage a solicitor to review the contract. The solicitor will advise on risks and recommend amendments to ensure the contract protects the purchaser’s interests and provides necessary warranties and protections. The purchaser’s and vendor’s solicitors will then negotiate and ‘fine tune’ the terms of the contract in accordance with their client’s instructions.
Step 4: Exchange
Once the terms of the contract have been finalised, each party will sign the contract. Often each party will sign an identical version of the contract, called a counterpart/ After the contract is signed, the parties will exchange the counterparts so that each party has an original signed copy of the contract. On exchange, the purchaser must pay the deposit to the vendor.
Step 5: Pre-settlement obligations
The contract will specify certain pre-settlement obligations that both parties must fulfill. This can involve a range of things such as:
Vendor:
Purchaser:
Step 6: Lease considerations
If the business operates from premises (and the premises are not included in the sale), either the existing lease will need to be transferred to the purchaser, or a new lease will need to be entered into with the landlord. Usually, the contract will specify that the sale is conditional on the transfer of the lease or the grant of a new lease on particular terms.
Step 7: Settlement
Settlement (or completion) occurs when the transaction is finalised. The vendor’s solicitor will usually produce settlement adjustment calculations. This document will list all payments made by the seller, such as council or water rates, employee entitlements, and other prepayments.
On settlement day, the vendor will give the purchaser all the documents relating to the transfer of ownership of business assets. They will also need to provide any records of the business including contact and client lists as well as any keys and security codes.
When the purchaser pays the seller and receives the keys and documents in return, the purchase is complete, and the purchaser becomes the new owner of the business.
There is a general duty imposed on Directors to put the interests of their shareholders above all others. This is commonly referred to as ‘shareholder primacy’. However, the focus of corporations has shifted, there is now a need to consider external factors such as social impact, environmental footprint, and stakeholder engagement. How do Directors manage balancing director duties between the corporation and its shareholders?
From a legal perspective, Directors must first and foremost act in the best interests of the company and not the shorter-term interests of its shareholders. In doing so, conflicts can arise between what actions Directors take to benefit the corporation in the long term and what actions shareholders wish the Directors to take.
Due to the limited powers shareholders possess to directly influence the decisions of Directors, relationships between Directors and shareholders can become tense. Whilst Directors primarily serve the company, if the shareholders are not pleased with the decisions made by the corporation’s board, they can exercise their power to vote to remove or replace one or more Directors. For this reason, Directors are indirectly accountable to shareholders.
There is no parallel duty for a director to act in the best interests of a corporation’s shareholders. Decisions regarding a corporation’s capital, including financial decisions including dividend policy are decisions for company management and ultimately, the board of directors. limited to individual shareholders. Even where the shareholder of a corporation may be a single entity that has appointed the entire board – such as the government – the board of directors still has the legal capacity to refuse requests from the shareholder so long as it acts in the best interests of the company.
An interesting event concerning the balance of the interests of the company and its shareholders is the 2022 Australia Post scandal surrounding former CEO Christine Holgate, who was allegedly ‘unlawfully’ stood down due to her actions in awarding company bonuses in the form of watches. Despite generating a wealth of revenue and profits for the company and its shareholders from her management decisions within Australia Post, the decision to issue yearly bonuses via watches to employees who had brought hundreds of millions of dollars worth of company contracts was deemed ‘unreasonable’ and ‘disgraceful’ conduct by the corporation’s sole shareholder worthy of her removal as the board’s chief executive. When questioned on her conduct, Ms Holgate believed the conduct was in line with the company’s policy of rewarding employees. Despite this, Australia Post’s sole shareholder – the Australian Government led by former Prime Minister Scott Morrison, made a complaint that the decision was not in line with the interests of the company which ultimately led to Ms Holgate’s removal as chief executive, showing the considerable influence shareholders hold over company directors.
Ultimately, conflicts such as the one stated above are due to a lack of clear corporate governance. To ensure Director’s decisions are in line with a company’s best interests, companies and shareholders should have clear rules and policies within their corporate governance documents such as company constitutions and shareholders agreements.
Abuse claims can be extremely triggering for survivors and very difficult, arduous work for abuse lawyers to run.
When you start a claim for abuse it is important to provide as much information as possible to give your claim the best chance at success.
5 things that will help your claim:
Chamberlains acts on behalf of survivors of childhood sexual abuse. If you or a loved one has suffered from historic sexual abuse, its crucial to understand your legal rights and options for compensation. Chamberlains Law Firm is here to help you navigate this complex and sensitive area of law. Our experienced team of lawyers can provide you with the guidance and support you need to seek justice and secure the compensation you deserve.
On 15 June 2022 the Court ordered, pursuant to Section 447A(1) of the Corporations Act 2001 (Cth) (the Act), that the operation of Pt 5.3A of the Act be modified in relation to the administration of the Company, extending the administration period to enable the recovery of debts owing to the Company by the Company’s creditors through the Building and Construction Industry Security of Payment Act 1999 (SOPA).
Facts
Megacrane Holdings Pty Ltd (the Company) operated as the servicing entity within a corporate group providing crane and labour hire services to development sites across New South Wales.
On 9 March 2022, Mr Liam Thomas Bailey (Mr Bailey) was appointed as the administrator of the Company. In the course of the administration, Mr Bailey issued payment claims under SOPA to developers and made successful recoveries pursuant to those payment claims or associated adjudication applications.
The first meeting of creditors of the Company was held on 21 March 2022 and the second meeting of creditors was convened to be held on 14 April 2022. The second meeting of creditors was adjourned to facilitate the Company’s collection of debts that could be claimed under SOPA as a number of pending SOPA actions were underway and further payment claims are expected to be made by the Company.
Under Section 32B of SOPA, a Company in liquidation cannot serve a payment claim or take action to enforce a payment claim or an adjudication determination and if an adjudication determination has not been finally determined prior to the liquidation, the adjudication application is taken to have been withdrawn on the date on which the company is placed into liquidation.
Issues for Determination – Administrators Application
Mr Bailey’s application was for an order under Section 447A of the Act that Pt 5.3A of the Act to permit a longer adjournment of the meeting of creditors, as the second meeting of creditors had already been convened and adjourned for 45 days permitted under Rule 75-140(3) of the Insolvency Practice Rules (Corporations) 2016.
Under this rule, any meeting convened under Section 439A of the Act must not be adjourned for more than the maximum period of 45 business days after the day on which the first meeting was held.
However, pursuant to section 32B of SOPA, if the Company were placed into liquidation, the legislation operates to cause any pending adjudication applications to be withdrawn and prevents the company from enforcing or issuing any further payment claims.
Mr Bailey referred in his evidence to the difficulties in recovering debts owing whilst in administration or liquidation, and the benefit of using the SOPA payment claims and adjudication processes.
The Court’s Findings
Justice Yates referred to the authority in Georges, in the matter of Vical N.S.W Pty Ltd (Administrators Appointed) [2018] FCA 1974 which provided for the operation of Section 447A(1) of the Act and Part 5.3A of the Act the Court may make orders as it thinks appropriate to essentially maximise the chance of the company and/or its creditors in comparison to if it were to proceed to winding up.
Further, the case of Diamond Press Australia Pty Ltd [2001] NSWSC 313 was referred to which provided that balance must be struck between the quick dealings of an administration and the actions to maximising the return to creditors and any return to shareholders in the administration.
Based on the administrators’ experience, the administrator’s assessment of the difficulties in recovering debts without the benefit of the SOPA process and the increased likelihood of a recovery through the SOPA process and the increased likelihood of a return to creditors as a result of an adjournment, Justice Yates granted the extension of the administration period to enable the recovery of debts owing to the Company.
Accordingly, Justice Yates allowed the adjournment of the meeting of the Company from 14 April 2022 to a day not later than 30 November 2022.
A link to the case can be found here.
Subsequent Applications
Subsequent applications for an extension of the administration period of the Company was sought on the same basis as above on 21 November 2022 and on 8 March 2023.
Under Section 447A(1) of the Act, on 21 November 2022, the Federal Court of Australia made orders permitting Mr Bailey to adjourn the Second Meeting to a date not later than 31 March 2023 and on 23 March 2023, the Federal Court of Australia made further orders permitting Mr Bailey to adjourn the Second Meeting to a date not later than 30 June 2023.
The above relief was sought to allow further time for the Company to recover any remaining debts owing to the Company to the benefit of the creditors as if Company placed into liquidation the recovery rights under SOPA would be lost.
The cases above shows that the Court will not have any difficulty applying orthodox principles to extend the voluntary of a Company to permit potential valuable recovery action under security of payment legislation to be taken.
*This article was prepared with the assistance of Priyanka Ram*
Amidst the property boom in Australia, many new homeowners are capitalising on ways to maximise their borrowing power, and subsequent ability to purchase a house or property. One common way to maximise this borrowing power is through a guarantee on the mortgage. A guarantee is a contractual agreement whereby the guarantor agrees to fulfill the repayment and other necessary obligations of a borrower if the borrower fails to do so.
It is very common for parents to provide a guarantee for home loans obtained by their children to assist their children purchase property. It also serves to avoid paying additional home loan insurance where they fail to meet the threshold of a 20% deposit. However, parents must proceed with caution when guaranteeing home loans, particularly where they fail to protect their own assets including their property.
The general way that a guarantee operates is that if a borrower defaults on their mortgage obligations, the lender can pursue the guarantor for payment. So, if you act as a guarantor on your child’s mortgage, and they fail to pay the required repayments, you may be held responsible for the debt. Moreover, to add to this element of risk, often where a borrower defaults on their repayment obligations, the entire amount of debt becomes immediately repayable (or within a much shorter timeframe than originally agreed). Therefore, if the borrower defaults, the guarantor can be exposed to a plethora of significant liability.
Where a borrower defaults, the first port of call is for the guarantor to repay the remainder of the loan. Where they are unable to do so, the assets of the guarantor may be used by the lender to settle the loan. This will be easily achieved by a lender where the guarantor has put their own property as security for the loan. So, if the borrower fails to make their repayments, there is a risk that your assets will be seized in order to repay the loan.
In addition to these risks against your assets, there may be additional risks that affect your capacity to borrow money. A guarantor is under an obligation to inform a credit provider of any loans in which they act as guarantor. Therefore, this may impact the guarantor’s capacity to borrow money. Moreover, the failure of the borrower to repay the loan could reflect badly on the guarantor’s credit rating, further impeding on their future ability to borrow.
It is strongly recommended that you seek legal advice when acting as a guarantor, so that you can appropriately protect your assets and liabilities. Additionally, you must be mindful that you will be liable to fulfil the obligations of another party if that party fails to do so, and consider their ability to satisfy the requirements of the mortgage.
Chamberlains Law Firm specialise in asset protection and guarantees. If you are considering providing a guarantee for your children’s mortgage, we encourage to contact us on 02 6188 3000.
What is a family provision claim?
A family provision claim is a dispute of the Will of a deceased person, on the basis that the Will-maker did not adequately provide for a person for whom they had a moral obligation to make proper provision. This may be because they were left out of a Will or left a smaller provision than expected. There are limitations on who can apply, and the timeframe in which they can make a claim.
Who can make a family provision claim?
Who can apply depends on the law of the State of Territory where the claim is considered. Each jurisdiction has its own definition of an ‘eligible person’ for a claim. This can be found, for example, in:
Generally, eligible people include partners and children. Sometimes they also include ex‑partners, grandchildren or stepchildren of the deceased depending on the factual circumstances and nature of the relationship.
When can you make a family provision claim?
There are also time limitations on making a family provision claim, which differ between the States and Territories. In New South Wales, a claim must be filed within twelve months from the death of the deceased, unless the Court permits an extension of time which is rare. In the Australian Capital Territory, an application must be made within six months from Probate being granted, unless the Court permits it out of time.
What does the Court consider?
When a family provision claim is put to a court, it considers a range of factors to establish if the deceased had a moral obligation to provide for the person making the claim. These commonly include:
None of these factors, on their own, is going to determine a claim. You should always get competent legal advice about the prospects of your claim when considering the factors above.
Why should I mediate a claim?
All family provision claims are likely to go through alternative dispute resolution before the claim is heard by the Court. This is usually in the form of a mediation. Mediation refers to a facilitated discussion where an independent third party, the mediator, assists the parties to find a solution to the dispute through discussion and questioning.
There are many benefits of settling a family provision claim in mediation:
What Is the Process?
In the case of a family provision claim, initial negotiations can begin as soon as the applicant gives notice to the administrator/executor of the estate that they intend to make a claim for provision or further provision. Though not considered mediation, exchanging offers at this early stage can help parties understand the other’s position.
Once an applicant has commenced court proceedings, they are required to put on evidence which summarises their claim on the estate – which requires their circumstances (including their financial position) to be set out. The administrator also has to set out in evidence what the estate contains so the parties know what there is to negotiate over.
Many courts require that the parties then attempt a mediation, or informal settlement conference, before the matter can proceed further:
The parties agree on a time, place and location for the mediation. Some mediations are conducted on Zoom or Microsoft Teams or Skype – for convenience, or because the parties do not want to be in the same room. This is another advantage of mediation – the parties do not have to confront each other if that will just cause more difficulty reaching agreement.
They also agree on a mediator (or to not have a mediator). Sometimes the Court will permit a “Court-annexed mediation” where a registrar of the Court acts as the mediator to facilitate the discussion. There are also “judicial settlement conferences” where a judge, who will not hear the matter at final hearing, will assist the parties to try to resolve their differences.
How does it work on the day?
On the day of the mediation, the opening session will usually involve the mediator explaining the process, and their role as facilitator: crucially, the mediator is there to help the parties consider options, not make a decision. Each party can then make an opening comment. Following that, there are structured negotiations led by the mediator, going between the parties and their representatives.
What happens then?
If the parties come to an agreement, the next step is to sign a formal settlement agreement. This is a written agreement that sets out the terms agreed during the mediation. In order to finalise the settlement, the parties must provide their agreement and proposed orders to the court. The court then considers and approves these orders to end the court case and claim.
If the parties cannot reach an agreement, they must tell the court that they attempted to negotiate but were unsuccessful in finding a resolution. The court will then continue the conduct of the matter – further evidence, and setting a hearing date to proceed with the claim.
What this means for you
At Chamberlains we have specialist lawyers who have extensive experience contesting Wills, as well as defending estates, to ensure you are provided with effective and personalised estate litigation advice.
[1] New South Wales Supreme Court, Practice Note SC EQ 07 – Family Provision, 2 December 2013, para 10.
Steven Leonard Mitchell, a rock climbing coach in the ACT, has pleaded guilty to two counts of maintaining a sexual relationship with a child, three counts of committing an act of indecency in the presence a child, and a single count of persistent sexual abuse of a child relating to offences occurring between 1994 and 2008.
The ACT Supreme Court has heard eight victim impact statements, detailing the traumatic effects of the abuse on the victims and their family, which included suicide attempts, mental health issues, nightmares and anxiety.
Mitchell worked as a rock climbing coach and a youth activities coordinator in the ACT.
The ACT Supreme Court will hand down a sentence in the coming week.
Chamberlains acts on behalf of survivors of childhood sexual abuse. If you or a loved one have suffered from historic sexual abuse, it’s crucial to understand your legal rights and options for compensation. Chamberlains Law Firm is here to help you navigate this complex and sensitive area of law. Our experienced team of lawyers can provide you with the guidance and support you need to seek justice and secure the compensation you deserve.
Contact our Abuse Compensation Claims Team to schedule a confidential consultation and take the first step towards healing and recovery.
Recent cases decided by the Fair Work Commission (‘FWC’) have gone towards enhancing the protections afforded to casual employees. Specifically, these decisions have confirmed that casual employees have a greater standing in unfair dismissal and general protection claims, forcing employers to be more careful in their decisions surrounding termination of casual employees. Here, we will analyse two recent decisions handed down by the FWC and their implications on the casual workforce.
James Arbon v Bunnings Group Limited T/A Bunnings Warehouse [2023] FWC 972
Mr Arbon was a full-time university student, who worked as a causal employee at Bunnings. He commenced his employment in April 2021, and continued to work until February 2023 when he was then no longer rostered for any future shifts. In the 26 weeks before he was dismissed, he worked at least one shift in 21 of the weeks, consistently being rostered on alternate weekends.
Ultimately, the FWC refined its analysis of what constitutes ‘regular and systematic’ employment, finding that Mr Arbon met the minimum service period to pursue an unfair dismissal claim, despite “unpredictable” shifts and provisions in his contract that did not guarantee regular and consistent hours.
In coming to this judgement, the FWC clarified a test for regular and systematic employment, outlining that an employment will be held to be regular if the work is frequent, even if it is unpredictable. Meanwhile, an employment will be held to be systematic where there is a pattern of engagement as a consequence of business reliance on the worker’s services. Furthermore, it was held that the limited number of shifts worked by Mr Arbon did not diminish his right to an unfair dismissal claim, as he consistently made himself available for work.
Cody Jackson v The Trustee for L & L Chua Family Trust No 17 T/A Brisbane Quarters [2023] FWC 268
In another recent case decided by the FWC, Mr Jackson, who was a casual guest services attendant at the respondent’s workplace, was forced to take on higher duties and responsibilities because the regional manager was consistently absent from the workplace. Mr Jackson made submissions to his employer, complaining about the higher duties and responsibilities, and was ultimately forced to take a fortnight of personal leave after experiencing a significant stress.
However, on his first day of leave he was dismissed from his ongoing employment due to his inconsistent moods and conflict with the regional manager. Consequently, Mr Jackson filed a general protections claim against his employer.
The FWC held in favour of Mr Jackson and found that by simply “dispensing” a casual employee and subsequently reducing their hours to zero can result in an unfair dismissal or general protections claim.
Key Takeaways
Both of these cases affirm a casual employee’s right to an unfair dismissal or general protections claim, particularly where they have worked regular and systematic hours. For employers, it is essential to take heed of these decisions and exercise care in managing the employment of casual employees. Employers who are considering terminating a casual employee should consult legal counsel to ensure that they do not expose themselves to a plethora of legal consequences.
Meanwhile, for casual employees, it is important to be aware of the remedies that are available where casual employment rights have been breached. Despite the status of a casual employee, such employees may still have a valid unfair dismissal or general protection claim depending on the circumstances surrounding termination of employment.
If you would like advice in relation to casual employment or any other workplace issues, please do not hesitate to reach out to our Workplace Law team.
** Prepared with the assistance of Oscar Arnott **