The Law Society of NSW Specialist Accredititation 

BLOGS

Any information contained in a blog on this website is general in nature only. The content of any blog posted below reflects information which is known to us as at the date of the posting of the blog. Please be aware that the law regularly changes. Please do not rely on the general information contained in the below blogs, instead we recommend that you contact us to obtain legal advice tailored to your own specific situation.

 

Dec05

WILLS AND ESTATES

Amanda Quin - Thursday, December 05, 2019

Blog by Andrew Graham Contact Email: amg@peacockes.com

 

REVENUE ISSUES RE WILLS AND ESTATES 

A.Testamentary Trust 

The use of testamentary trusts has been widely promoted over recent years by those in the financial planning industry and also by accountants and lawyers. The principal reason for the use of the testamentary trust, from the point of view of potentially saving tax, is due to the notion of “excepted trust income” under Section 102AG(I) of the Income Tax Assessment Act, 1997 (“the Act”).

Normally minors who derive non-personal service income by a distribution from a discretionary trust are taxed at penalty rates under Division 6(iv) of the Act where the income received exceeds $416.00. However, where the minor receives income from a trust created in the Will of a person, the income is treated as “excepted trust income” and the minor is taxed on that income as if the minor were an adult. This allows the recipient of the trust income to receive the first $18,200.00 tax free (if the minor has income from no other sources) and also allows the minor the benefit of the progressive tax rates where the income received exceeds $18,200.00 up to the maximum tax rate of 47% (including the 2% Medicare levy) where the income exceeds $180,000.00.

Accordingly, potentially significant amounts of tax may be saved where the children of an elderly person have children under the age of eighteen (18) years. The testator, instead of leaving the whole or part his estate to his child or children could instead establish a testamentary trust for the benefit of that child or children and their wider family members. Typically, each child is appointed as the trustee of the testamentary trust and the beneficiaries, being discretionary, include members of that child or children’s family. The tax payable by the family unit will be significantly less than it would have been had the testator left his estate directly to his child, or children.

There are other potential advantages of use of testamentary trusts, but this blog concentrates solely on the revenue implications (both positive and negative) of such trusts.

Whilst significant tax savings may be achieved where minor beneficiaries are eligible to receive income of the testamentary trust, caution should be exercised before concluding that testamentary trusts are the panacea of estate planning. The following potential disadvantages of testamentary trusts should also be taken into account:-

1.Principal Place of Residence – A testamentary trust does not enjoy the principal place of residence exemption for capital gains tax purposes. Accordingly, if it is intended that a beneficiary of a testator use a property received under the Will of a deceased as his or her principal place of residence, if such property were devised to the trustee of a testamentary trust (as indicated above, usually by a child of the deceased) any profit realised on the eventual sale of the property by the testamentary trust will not be free of capital gains tax. The net capital gain may be reduced by 50% if the property is held for more than twelve (12) months, but the CGT free status of the principal place of residence will be lost.

2.Whilst stamp duty will not be payable upon the transmission of any dutiable property from the deceased to the Trust (so long as it “passes” under the Will of the deceased), any transfers by the Trust to any beneficiary of the trust will be liable to stamp duty. Careful consideration therefore needs to be given to the actual assets, especially real property, which are left to a testamentary trust by the testator.

3.A discretionary trust, unless the trust deed establishing the trust specifically excludes any foreign person from being a beneficiary, will be treated as a “foreign person” for the purposes of the Duties Act, NSW. This means that if a discretionary trust owns real property, not only does it pay land tax on the full value of the property (i.e. does not get the benefit of the tax free threshold, it is also required to pay the surcharge rate of land tax of 2% (in addition to standard land tax). Furthermore, for land tax purposes, the principal place of residence is not exempt, even though it may be used by the beneficiary as his home. The common testamentary trust is really a discretionary trust embodied in the will of the testator which comes to light upon the death of the testator. Significantly the terms of the trust cannot be amended (for example to exclude foreign persons as beneficiaries), unless the will permits it.

4.If the trustee of a testamentary trust uses money of the trust (inherited from the deceased) to purchase real property, foreign surcharge duty (calculated at the rate of 8% on the value of any residential land) could be payable even if the deceased was not a foreign person.

B.Partition of Estate

A device which can produce potentially large stamp duty savings is to partition an estate, rather than to agree on the division of specific assets under a deed of family arrangement.

The following simple example illustrates the potential savings in stamp duty:-

Assume that properties A and B are left to the two beneficiaries, X and Y equally, but that X wants to take Property A and Y wants to take Property B..

If property A has a value of $2,000,000.00 and

property B has a value of $5,000,000.00 then:

Option 1: Deed of Family Arrangement

Under a Deed of Family Arrangement X gets A (worth $2,000,000.00) and Y gets B (worth $6,000,000.00).

The total duty payable is  calculated as follows:-

   i.   A – duty payable on 50% of $2,000,000.00 ($1,000,000.00) = $40,490.00

   ii.  B – duty payable on 50% of $6,000,000.00 ($3,000,000.00) = $150,302.00

Total duty = $190,792.00.
 

Option 2: Partition

The alternative would be to partition the estate under Section 30 of the Duties Act, NSW.

Under the partition X gets 100% of A and Y gets 100% of B. The duty payable is then:

      i.  X – Duty payable $50.00

     ii. Y – Duty payable on $2,000,000.00 ($6,000,000.00 – 50% x $8,000,000.00) = $95,302.00

Total duty = $95,352.00

Therefore the stamp duty saved by choosing to Partition, rather than to use a Deed of Family Arrangement is $95,440.00

                  - - - - - - - - - - - - - - - - - - - - - -

The above demonstrates that careful planning can result in significant revenue savings by beneficiaries following the death of the testator.

It pays to get advice from a professional person having experience and expertise in revenue implications of estate planning and deceased estates and we at Peacockes Solicitors can guide you in the right direction.


 

Dec04

Deposit Bonds

Amanda Quin - Wednesday, December 04, 2019

Blog authored by Amanda Quin

What is a Deposit Bond?

A Deposit Bond is a document which a lender or an insurer or other entity issues which states that the issuer will guarantee the payment of the cash deposit in respect of a contract for sale of a property and will pay the deposit, if called on to do so. There may be other terms and conditions or restrictions noted in the Deposit Bond. For example many Deposit Bonds have an expiry date and will require the original Deposit Bond to be provided to the issuer prior to that expiry date in order for a claim to be made.

Is there a fee for a Deposit Bond to be issued?

Generally a Deposit Bond issuer will charge a fee to provide the Deposit Bond. A full credit application is also usually required to be made by the Purchaser.

When are Deposit Bonds used?

A Purchaser of a property may wish to provide a Deposit Bond if they do not have sufficient money at hand to pay a cash deposit. This may be because they have other investments that they do not wish to liquidate or perhaps because they are borrowing the full purchase price.

Does a Vendor have to accept a Deposit Bond?

A Vendor can refuse to accept a Deposit Bond and may instead insist on a cash deposit being paid.

However if the Purchaser does not have the money available to pay a cash deposit, then this may mean that the sale does not proceed.

Are there any risks if a Vendor accepts a Deposit Bond instead of a cash deposit?

Yes there are some risks including:

(a) That the Deposit Bond may be fraudulent. (NB this risk can be reduced by your legal practitioner or conveyancer checking the authenticity of the Deposit Bond directly with the issuer prior to exchanging contracts); and

(b) Although it has not happened often, there have been instances where a Deposit Bond issuer has been placed into administration/liquidation - which effectively makes the guarantee worthless. NB In such a case, the Purchaser does still remain liable to themselves pay the Deposit and to complete the Contract and in most cases, the Purchaser will proceed to settlement and the deposit will be paid on settlement.

However, there is a risk that if both the Deposit Bond issuer and the Purchaser are unable to pay the deposit, then the Contract will not complete and the deposit will not have been paid. Court action could still be taken against the Purchaser to recover the deposit - but that would only be practically viable if the Purchaser has financial resources to meet any judgement that may be handed down.

A prudent Vendor may need to carefully consider the reliability of the Deposit Bond issuer prior to deciding whether or not to accept a Deposit Bond instead of a cash deposit.

 

Dec04


Blog by Andrew Cannon – Contact email: aac@peacockes.com

In the midst of the early arrival and the destructive widespread bushfire already throughout Eastern Australia, more than ever it is important to know and understand what rules and laws are applicable to you and your district over this festive season before commencing any activities with fire such as BBQ’s and outdoor pizza ovens.

Fire safety in NSW is mainly regulated by the following legislation in NSW:

  • Rural Fires Act (NSW);
  • Rural Fires Regulations 2013 (NSW);
  • Protection of the Environment Operations Act 1997 (NSW);
  • Fire and Rescue NSW Act 1989 (NSW);
  • As well as by public authorities such as Local Council regulations via their Local Environmental Plans (LEPs) and rules, news and updates maintained and monitored regularly by the NSW Rural Fire Service.

What is a total fire ban ?

Section 99 of the Rural Fires Act 1997 (NSW) sets out the definition, requirements of and exemptions in relation to total fire ban orders in NSW.

A total fire ban (pursuant to section 99 (1) (a) and (b) of the Rural Fires Act) prohibits the lighting, maintenance or use of fire in the open air for an affected district. These fire bans are declared in the interests of public safety by the Minister. The ban extends also to any activity in the open air that directly causes, or is likely to cause a fire.

Total fire ban orders are declared according to district and on days where there is likely a culmination of weather conditions that are fore-cast as likely to be very hot and dry (conducive to fire) and very high to catastrophic risks of bushfire (including additional factors such as any surrounding impacting bushfires and volume of dry vegetation present).

Potential penalties

Pursuant to section 99 (11) of the Rural Fires Act and Schedule 2 Part 1 of the Rural Fires Regulations, a person who fails to comply whilst a total fire ban order is active is liable to:

  • $2200 fine issued on the spot;
  • If found guilty in Court, up to a maximum fine of $5,500 and/or 12 months gaol.

Exemptions

Certain exemptions may apply to fire activities during total fire bans.

These exemptions are specified in the Rural Fires Act, Regulations and the NSW Rural Fire Service Schedule of Standard Exemptions to Total Fire Bans, which can be found at www.rfs.nsw.gov.au/fire-information/fdr-and-tobans/schedule-of-standard-exemptions-to-total-fire-bans .

Table of Uses

ACTIVITY IS IT PERMITTED DURING A TOTAL FIREBAN? CONDITIONS

Operating an Electric BBQ’s

 

 

Yes – subject to conditions

 

 

The electric BBQ must be under the direct control of a responsible adult present at all times whilst operating it and no combustible material is to be within two (2) metres of the BBQ at any time whilst it is operating.

 

Operating a Gas BBQ’s

 

 

 

 

Yes – subject to conditions

 

 

 

 

Only if the BBQ is under the direct control of a responsible adult who is present at all times and no combustible material is within two (2) metres of it whilst operational and there is a system of applying an adequate stream of water, such as a hose, to the BBQ and its surrounds and such water is able to be applied for immediate and continuous use. In addition - the BBQ needs to either: (a) be within 20 metres of a permanent private dwelling such as a home; or

(b) If in a Park, National Park or State Forest, must be within a designated picnic area and the appliance must have been approved by Council, National Parks or State Forest – as the case may be.

Operating Wood/ coal fired BBQ’s and pizza ovens

Must not be used if outside or if lit in the open air. Any oven or BBQ using solid fuel must not be used during a total fire ban.

 

 

 

Burning of Garbage, refuse and putrescent material

 

 

Yes – but subject to conditions and subject to any permit requirements.

 

 

 

The fire may only be lit if in an incinerator designed to prevent the escape of sparks and burning material and the incinerator is clear of all combustible matter for a distance of at least 5 metres. A permit may also be required. See clause 26 of the Rural Fire Regulations and rule 7 of the Schedule of Standard Exemptions to Total Fire Bans.

 

General hot works

 

 

 

 

 

 

 

General hot works and activities such as welding, grinding, gas cutting and activity that produces a spark or flame are prohibited and not to be done in the open environment. However exemptions apply to limited activities such as: -Fireworks (but only if part of an organised public display);

-Bitumen roadworks;

-Beehive smokers;

-Mining operations; and

-Building, construction or demolition

(all of the above are subject to individual and respective conditions).

 

Light, use or carry tobacco

 

 

Generally permitted – but – there are certain locations where this is not permitted. It is NOT permitted to light, use or carry any lighted tobacco product, match or other material within 15 metres of any stack of grain, hay, corn or straw or any standing crop, dry grass or stubble field.. Any persons caught in breach risk receiving a $660 fine on the spot (see s99A (1) of the Rural Fires Act and clause 28 of the Rural Fires Regulations.  

 

Bush Fire Danger Period and Fire permits

Even if a total fire ban order has not been made, there are also general restrictions regarding the lighting of fires in the open during the statutory Bush Fire Danger Period (ie from 1 October to 31 March).

If you are planning to light a fire in the open during the statutory bush fire danger period, from 1 October to 31 March, a fire permit is generally required.

If you do obtain a fire permit, then under Part 4 Division 5 of the Rural Fires Act it will be suspended on days declared as a total fire ban. The suspension of the permit will continue until the ban is lifted as notified by the Minister (which can be found on the NSW RFS website and app).

NB Providing it is a non-bush fire danger period, then fire permits are not required for any fires that are lit and maintained for the purposes of land clearance or creating a fire break or for the purpose of cooking food. In the case of cooking food, the fire needs to be in a permanently constructed ground fireplace, at a site surrounded by ground that is cleared of all combustible materials for a distance of at least 2 metres all around and completely extinguished before leaving.

Other considerations

Under section 133 of the Protection of the Environment Operations Act 1997, the EPA also reserves the right to prohibit fires burning in the open air or incinerators where it is of the opinion of the EPA that, because of forecast weather conditions and current fire activity and danger, further burning is likely to contribute to the build up of air pollution.

The Rural Fire Service NSW on www.rfs.nsw.gov.au and app “Fires Near Me” are critical and valuable sources of information for staying up-to-date with changing conditions and fire dangers, as well as local news and radio bulletins and programs for ensuring your safe management and compliance with fire safety this festive holiday season.