Tax and Superannuation Update - Spring 2000 Edition
Revenge is sweet.
25 years ago my Dad left Mum for another woman. Mum said it wouldn’t last but
Dad eventually married her. Dad paid maintenance for us, but Mum said that it
wasn’t enough to bring up 3 children. Dad kept in contact with us over the
years. I love my Dad, but I only put up with Her for his sake.
Dad died a few months ago. Mum said “I bet he left everything to her in his
Will”. A few weeks later I received a letter from Dad’s 2nd wife’s solicitor
asking that I consent to “Letters of Administration” being granted to my Dad’s
wife. I rang my Adviser who put me in touch with a Lawyer. Apparently an
application for Letters of Administration only occurs because Dad left no Will.
This means that Dad’s 2nd wife is applying for the right to administer my Dad’s
estate according to law. Apparently, she is only entitled to the first $50,000
of Dad’s estate plus 1/3rd of what is left.
Dad was not a rich man. He owned the house that he and his wife lived in, in his
own name. Dad owned nothing else of value. The house was valued at $350,000.
This means that Dad’s wife has to either find $200,000 to pay us our share of
the property or find somewhere else to live once the house is sold.
My Dad’s wife is now 60 years old and does not work. I hope she likes house
Does this scenario sound familiar? We encounter it all too often. Your death, is
one of the most traumatic periods your loved ones will experience. Dying without
a valid Will, only makes this time harder.
An effective well drafted Will is one of the best ways for you to ensure your
loved ones are provided for after you die. However, if you want to make sure
your loved ones are provided for in the most tax effective manner, then get a 3
Generation Testamentary Trust Will individually drafted to suit your
beneficiaries’ needs. For more information on Estate Planning and 3 Generation
Testamentary Trusts see
He cheated on her yet his Family Trust got everything! - The Family Court’s
new love child!
The two biggest times to tax plan are Divorce and Death. Accountants, Advisers
and Tax Lawyers get plenty of work in Estate Planning. However, mum and dad
don’t seem to care much about saving tax at the time of a family break down.
This is sad. There are a lot of tax loop holes for husbands and wives in the
transfer of assets. Even without a divorce you can move assets from husband to
wife without triggering Capital Gains Tax. You also don’t have to pay Stamp
Duty. (You need a deed or a court order under the Family Law rules first.)
Recently the Victorian Supreme Court went even further. The Court transferred
the family home to not the husband but to his Family Trust! In my 20
years as a lawyer I have never seen this before.
the stamps man come down on you?
The real estate was therefore available
beneficially to many people - not just the husband. The husband “controlled” the
asset in the Family Trust. For tax purposes he didn't “own” the asset. “Control”
of an asset is generally better than “owning” an asset in Australia. The
Commissioner of State Revenue was stunned. He wanted Stamp Duty on the transfer.
It didn’t look right to the Stamp Duty man. He assessed the transfer as a full
The Trustee of the Family Trust went to war. The Trustee claimed the transfer
was exempt under the family break down provisions of the relevant Stamp Act.
Justice prevailed. The Court held that the Commissioner couldn’t have any Stamp
The facts differ from the usual situation. Usually mum and dad at war are trying
to dismantle a Family Trust. The Capital Gains Tax legislation and local Stamp
Acts in each state focus on transfers to mum and dad themselves - not to
their Family Trusts.
So what does it all mean? It may now be possible to use the Federal and State
family break down relief to transfer family assets to Family Trusts. Family
Trusts have great flexibility in saving tax and protecting the assets from
Peter Nettleton - ex ATO, now protecting you at Civic Legal
through your Adviser, Lawyer and Accountant you can order Family Trusts 24 hours
a day from www.LawCentral.com.au.
You already have a Buy/Sell agreement - so why is the Tax Man so happy?
Without an effective Buy/Sell agreement, most businesses are doomed when you are
gone. Finally, it seems, the Tax Man agrees. He has taken time out of his busy
schedule to clarify the CGT implications of Buy/Sell agreements.
Your Adviser, Accountant and Tax Lawyers can now work together more effectively
without having to look over their shoulders to see if the Tax Man is coming to
pay an unfriendly visit.
The Tax Man’s Council of Elders, operating under the unassuming guise of the
Capital Gains Sub-Committee convened late last year to discuss the taxation
implications of various forms of Buy/Sell agreements. Over half a year later,
the resulting report is surprisingly clear, concise and demonstrates a great
deal of common sense (Is this the same Tax Man we all know and love? -
Ed). The issues dealt with by the committee were those that have affected
business succession planners for many years. The only difference is that this
time, we got some realistic answers.
The 2 Fundamentals
The Tax Man agrees that the two fundamental aspects of Buy/Sell arrangements
The transfer agreement; and
The funding agreement.
We believe that transfer agreements should never be a part of an existing
Shareholder Agreement or Unit Trust. Stand alone transfer agreements are needed.
Secondly, the funding of the transfer comes from capital proceeds paid by the
remaining owners or by proceeds of insurance held by the remaining owners under
Self-Ownership, Cross Ownership or through an Insurance Trust. You need to talk
with your Accountant, Adviser and Tax Lawyer about which funding mechanism is
best for you.
the wise men at the Tax Office finally got it right this time?
That raging dinosaur, the Mandatory Buy/Sell agreement (Not as extinct as you
may think - Ed), may now come back to haunt you. The Mandatory
Buy/Sell agreement still brings adverse CGT consequences for all parties on the
disposal of the business interest. Why? Mandatory Agreements trigger full CGT
and Stamp Duty at the time you sign the Agreement. The Tax Man will thank you
for making such an early “deemed disposal”. Using Put and Call Options and
certain funding mechanisms in separate agreements is the answer.
Deeming Market Value
The Tax Man makes it clear that he deems a disposal of your dead
partner’s interest to have taken place at market value on the date the options
The market value substitution rule in sections 116-30(1) and 116-30(2) of the
1997 Tax Act deems market value to have been the “price” of the interest
acquired by the remaining owners and received by the outgoing owner. This is
regardless of whether the outgoing owner (or their estate):
1) receives the payment from the remaining owners, or 2) from an insurance
payout direct to the outgoing owner, or 3) whether the remaining owners paid
less than market value for the interest and the Buy/Sell agreement was not an
arms length transaction.
What do I do now?
Ask yourself the following questions:
Do you have a Mandatory Buy/Sell Agreement?
Are you unsure what type of Buy/Sell Agreement you have signed?
Is there little or no documents to make your existing business relationship
clear and enforceable?
How well do you know your partner’s mistress? If you don’t know what your
partner’s mistress would do if your partner died, or you answer no to any of the
other questions, your business may be heading towards trouble. Talk to your
Accountant and Adviser about reviewing your existing documents and ensuring that
you have a Buy/Sell Agreement which is both accurate and tax effective.
Now, more than ever, there is a requirement for you as a business owner to
consider an orderly exit strategy. Get it right - or pay the price !!
Find out more on Business Succession Planning at
And to my Mistress I leave my... semen?
Brett Davies from Civic Legal stated recently at a Planner’s Conference
that your Will should include instructions for the extraction and use of your
semen after you die - especially if your wife or mistress is still of child
bearing age (And what a mess that comment left him in! - Ed).
This raises all sorts of societal, moral and ethical dilemmas. Father a child
from your coffin? Expect a knock on the coffin from Centrelink? After all the
child can challenge your Will. Is it right for your grieving mistress to keep
part of you - for her use and enjoyment? Should the grieving widow be prevented
from fulfilling her desire to have children fathered by you?
the stork be making a late delivery after you die?
Both your politicians and courts have shied away from the issue.
Brett Davies from Civic Legal advised that,
generally the Courts don’t allow semen extraction without consent. However,
semen is more likely to be removed if your Will gives the go ahead.
So if your Will says “OK, extract away”, is that enough? Do you believe that you
own your body? Well think again. Even while you are alive your body may not be
under your full control (Or your spouse’s! - Ed). If you decide to damage
your body too severely you will be committed for your own safety. If you ask
someone else to damage you, they can still be guilty of a crime. Further you may
decide you would like to be buried at sea. This is fine. You can put the request
into your Will. However, when the Will is brought out 3 days after you are
buried in Karrakatta cemetery everybody says oops! It is a lot of money to dig
you up - and the paper work! Why? Because your body is not yours to dispose of.
Even if your wishes were known they are not binding. Your Executor and next of
kin have the final say as to where and how your body is disposed of.
So yes, you can put instructions for your sperm into your Will. However, Brett
Davies Lawyers advise that you share your intentions with your Executor and
family - before you die. What the Courts or the God Complex doctor dictates may
be something different.
The law will one day catch up with technology - it always does - in time. Until
then if you wish that your sperm be extracted, preserved and used by someone in
particular, then put it into your Will. At least your wishes will be known.
Conversely if you have instructions for sperm presently frozen and stored, then
put this into your Will.
However your Will has no effect until you die. Consequently your Will can not
govern any decisions made before your death. Even a Mutual or Cascading Power of
Attorney can’t help you here. Lets face it, before you die is a better time to
extract semen - by whatever means.
The moral of the story...if you want children....”make hay while the sun shines”.
There is no point in flogging a dead horse.
Civic Legal do Estate Planning Australia wide via your Adviser,
Accountant and Lawyer.
Confidentiality Deeds go on-line
You can now get your Confidentiality Deed without having to see a lawyer.
Confidentiality Deeds now join the stable of products available from the on-line
Legal document provider Law Central.
Law Central was initially started by Civic Legal to provide standard
legal documents such as Family Trusts and Self Managed Superannuation Funds
without legal consultation.
More Documents will be available as Law Central moves towards a proposed listing
with the ASX early next year.
Law Central Legal documents are currently only available through your Adviser,
Accountant and Lawyer
You can visit Law Central at