McMasters Solicitors Newsletter March 2012

McMasters Solicitors Newsletter March 2012 McMasters Solicitors 71 Tulip Street, Cheltenham Victoria 3192 PO Box 68 Sandringham Victoria 3191 Phone: 03 9583 6533

Good Afternoon, Welcome to the first edition of McMasters Solicitors newsletter for 2012! McMasters Solicitors provides quality legal advice and services to clients in commercial law, conveyancing, property, litigation, estate planning, employment, Australian financial services law, business, trust, superannuation and taxation matters. We focus on building strong and trusted relationships with our clients and pride ourselves on being able to provide advice in a large range of legal areas. In 2009, the Federal Government passed the PPSA which fundamentally changes the landscape for registration, determination of priority and enforcement of security interests in personal property in Australia... Conveyancing We now offer conveyancing services for Victorian clients acting for both the vendor and purchaser in a range of property transactions from residential first home owners to larger commercial transactions. All conveyancing work is carried out by a qualified legal practitioner, rather than a conveyancing clerk, so you can be sure that you receive the highest quality service and the benefit of a solicitor s knowledge in this regard. Our fees start from $1,300 to $1,500 plus GST and disbursements for a simple residential home purchase. Please contact Meghan Warren on meghanw@mcmasters.com.au for a quote. Please note that very recent changes to Victorian sale of land legislation has restored purchaser s cooling off rights (usually three business days from the purchaser signing the contract of sale) where clients have received pre-contractual advice from a legal practitioner. Therefore, please do not hesitate to contact us for a legal review of your contract of sale and vendor s statement (Section 32 with property searches) either prior to or immediately following signing the contract. We offer this service at the rate of $170 - $300 per hour plus GST. Personal Property Securities Act 2009 ( PPSA ) In 2009, the Federal Government passed the PPSA which fundamentally changes the landscape for registration, determination of priority and enforcement of security interests in personal property in Australia. The PPSA establishes a new, single, searchable online register to record security interests in personal property in Australia. Details of security interests in personal property can be both registered and searched using the Personal Properties Security Register (PPSR), which can be found here:- http://www.ppsr.gov.au/pages/ppsr.as px

When searching the PPSR, you should search by ACN, ABN and Company Name. Being an individual trustee makes you responsible for the actions of your fellow trustee, and liable for any resulting tax, even if those actions were done without your knowledge. The PPSA commenced substantive operation on 30 January 2012. Therefore, it is well and truly time to be preparing your business to ensure it is able to comply with the requirements of the PPSA and is not left in a position where its current (and future) security interests are unenforceable or are subordinated to the rights of other security interest holders. Please note that land is not personal property and the PPSA does not apply to interests in fixtures on land. Please contact us for further advice if you have entered into any agreements or contracts involving personal property which give rise to security interests because these interests will need to be registered on the PPSR pursuant to the legislation. Under the PPSA, the secured party is responsible for both registering the security interest and amending the PPSR when there is a change to a security interest. Corporate vs. Individual Trustees One of the common questions for self managed superannuation fund (SMSF) trustees, as well as trustees for other types of trusts, is whether to appoint individual persons to act us trustees of the trust or, rather, a company. Many opt for individual trustees for their SMSF due to the appearance of more administrative simplicity and to avoid the initial and ongoing costs of establishing a company, however, is there potential for a sting in the tail in this approach? Being an individual trustee makes you responsible for the actions of your fellow trustee, and liable for any resulting tax, even if those actions were done without your knowledge. Recently, the Administrative Appeals Tribunal affirmed the decision by the ATO to declare a SMSF as a non-complying fund after one of the trustees misappropriated funds without the knowledge of the other trustee and then absconded. This resulted in the remaining trustee being liable for a very significant tax bill with few remaining resources in the Fund. The husband removed $3,460,000 from the Fund s bank account without the wife s

knowledge. The couple divorced and the husband disappeared overseas. At the time of the withdrawals, neither member was entitled to draw any benefits from the Fund. A further benefit of having a corporate trustee over an individual is where, for example, the trustee owns property. If it is owned by a company and change in the directors or shareholders occur, this does not trigger capital gains tax or stamp duty. The ATO declared the Fund non-complying, with the result being tax payable by the Fund of $1,583,873.68, with additional penalties of $1,475,322.50. The situation would not have been so dire for the wife if a company had been trustee. As an individual trustee, the wife was personally responsible for the Fund s tax liability, even though it arose from events with which she had no knowledge or involvement. This is not the case if the trustee is a company. A further benefit of having a corporate trustee over an individual is where, for example, the trustee owns property. If it is owned by a company and change in the directors or shareholders occur, this does not trigger capital gains tax or stamp duty. However, if the property is owned by individual trustees and these change or need to change for any reason, there may be stamp duty and capital gains consequences. The initial establishment fee with ASIC for a company is $426 and the annual ongoing fees are only around $200, therefore, when the risks are considered, the costs of having a corporate trustee, rather than individual trustees, represents money well spent and we would almost always recommend this approach to our clients. Please contact Meghan Warren at meghanw@mcmasters.com.au if you would like more information about establishing a corporate trustee for your relevant trust. Please note that the prices quoted here only include ASIC s fees and if you require our assistance in establishing a corporate trustee, our professional fees will be charged to you on top of this. Please contact us for a quote. Bamford s Case: Amending Trust Deeds Some clients will be aware of a 2010 High Court decision, known as Bamford s case, concerning family trust distributions and the concept of net income, and also the unclear current legislative environment surrounding these issues. We are currently in the process of amending and updating our clients trust deeds so as to ensure that the deeds stay 100% current and competent, and in particular give the trustee a clear power to:

Whether a worker is an employee or a contractor is an issue that is often argued before courts and tribunals in Australia. The distinction is critical as getting it wrong can result in a liability to pay the superannuation guarantee charge (SGC) and other penalties. 1. determine whether a particular receipt should be on revenue account or capital account; 2. determine that an alternative definition of net income be used if the trustee wishes to do so; 3. has a power for the trustee to stream income (in particular net capital gains and franked dividend income); and 4. provide for streamed income (in particular net capital gains and franked dividend income) to retain its character in the hands of beneficiaries. Most of our clients trust deeds have been updated, however, we are still waiting on some clients to send us copies of their original executed trust deeds for review. If you believe that your trust deed has not been updated in accordance with the above, please scan and email a copy of your trust deed to Yuji at yuji@mcmasters.com.au. The fee is $250 plus GST for this service, and the fee note is generally deductible. This fee is about half the standard fee charged by shelf company services using unqualified staff. Engagement of Non-Owner Doctors The ATO is currently targeting employers and principals who fail to adequately discharge their PAYG and superannuation guarantee obligations. Whether a worker is an employee or a contractor is an issue that is often argued before courts and tribunals in Australia. The distinction is critical as getting it wrong can result in a liability to pay the superannuation guarantee charge (SGC) and other penalties. Adding to the complexity is the extended definition of employee in section 12(1) of the Superannuation Guarantee (Administration) Act 1992 (SGA Act), which deems certain individuals to be employees for superannuation guarantee purposes, even though they would otherwise be outside the scope of the SGA Act. In particular, section 12(3) of the SGA Act deems a person that works under a contract that is wholly or principally for the labour of the person to be an employee for superannuation law purposes. The ATO determined in ATO ID 2011/87 that a medical practitioner was not an employee within the common law meaning or the extended definition of employee under section 12(3) of the SGA Act.

The substance and wording of the documents used to engage the doctor are critical and must be carefully worded in order that the doctor is engaged correctly for ATO, Fair Work Australia, professional indemnity insurance and WorkCover purposes. The medical practitioner was engaged by a clinic to provide services to its clients. The fees paid by the clients were paid to the clinic and upon the practitioner invoicing the clinic; the practitioner received a set percentage of the fees. No amount was withheld and the medical practitioner did not receive any employment benefits. The clinic provided treatment rooms, equipment and receptionist services and retained the remaining fees as consideration for providing the facilities. Importantly, the medical practitioner could not delegate. The ATO determined that the agreement was results based and the clinic had no right of control over the manner in which the medical practitioner treated clients. Therefore, the medical practitioner was not an employee for the purposes of superannuation law, despite not having the right to delegate. While this case appears relatively straight forward, the distinction between an independent contractor and a deemed employee under superannuation law is notoriously difficult to navigate. Further complicating this issue is that the correct way for a non-owner doctor to be engaged by a host practice is neither as an employee or an independent contractor. The non-owner doctor is running their own practice within a practice. This is important for all medical practices and medical practitioners to be aware of to ensure that when engaging a new doctor or commencing with a new practice, the non-owner doctor is engaged correctly. The substance and wording of the documents used to engage the doctor are critical and must be carefully worded in order that the doctor is engaged correctly for ATO, Fair Work Australia, professional indemnity insurance and WorkCover purposes. Medical practices and doctors should review the current terms of their engagement and how these relationships are documented. Please contact Meghan Warren at meghanw@mcmasters.com.au if you have any further questions or concerns about this. We can review your current documentation and, if necessary, draft new documents for your at a low cost.

The Legal Team We are pleased to welcome the addition of two new lawyers who will be working with McMasters Solicitors and in the McMasters financial planning department in the near future. Simon Lo is a third year lawyer with particular specialisation in the areas of commercial law, litigation and tax. He will be joining us on 26 March 2012. Natasha Lombardo is a fourth year lawyer with particular specialisation in commercial law, trust law and litigation, and will be assisting in property law and conveyancing also. Natasha will be joining us on 26 April 2012. Yours faithfully Meghan Warren Senior Lawyer