Duties Act – Intergenerational Transfers Changes. Does This Affect You?

Intergenerational Transfers Affected by Changes to the Duties Act 2001 (Qld)

New transfer duty concessions will now be available for transferees, particularly in relation to intergenerational transfers of prescribed and primary production businesses, pursuant to the Queensland Government’s welcomed changes to the Duties Act 2001 (Qld) .

How does this affect eligibility?

Transfer duty concessions are now available for primary production businesses or prescribed businesses. A primary production business is a business of agriculture, pasturage or dairy farming. A prescribed business solely involves one of the following business activities:
- excavating and earthmoving
- picture framing
- gunsmithing
- locksmithing
- manufacturing
- processing and packaging
- printing and publishing
- boot and shoe repairing
- retailing and wholesaling (whether or not it involves repairing or installing goods sold)
- upholstering
- undertaking or funeral directing
- other (being beauty salon or barber shop, bus service, cinema, crematorium, engineering workshop, laundry or laundrette, newsagency, travel agency or real estate agency, repair and service workshop, rental business, restaurant or café, service station, sports complex or gymnasium, warehouse or bulk storage complex).

Concessions

If eligible, no transfer duty is payable if the business property carries on a primary production business. If residential land, which is adjacent to the land used to carry on a primary production business, is transferred under the same transaction then no transfer duty is payable. Unfortunately, transfer duty on water allocations still must be paid.
If the business is a prescribed business, transfer duty rate must be applied to any purchase. Here, transfer duty is payable on business property worth $500,000 or more. For example, if a property is worth $750,000, duty is payable on $250,000 (being the amount above $500,000). A list of transfer duty rates is available at the Queensland Government website.

Requirements

To qualify for a concession, the following is required:
1. the Transferor conducts the business and must be:
a. for a primary production business, a defined relative (spouse, siblings and children) of the transferee; or
b. for a prescribed business, an ancestor of the transferee.
2. the Transferee intends to carry on the business;
3. the Transferee carries on the business after the transfer;
4. the Transferee does not acquire the business property as an agent for another individual or as trustee; and
5. if a prescribed business, the transfer must occur by way of gift.

Takeaway – What does this mean for you?

When it comes to intergenerational transfers, questions of eligibility requirements and concessions are complicated. Forms and documents required to satisfy the Office of State Revenue can be daunting, too. If you need advice regarding transfer duty exemptions, please contact the experts at Rouse Lawyers. We have teams who specialize in property law, estate planning and taxation.

Need help and advice about intergenerational transfer duties? Get expert legal and taxation advice at Rouse Lawyers today.

Duties and Other Legislation Amendment Bill 2016 on 17 June 2016

Are You Putting Off Making A will? Don’t Wait. Here’s Why.

Putting Off Making A Will? Don’t Wait. Here’s Why.

We are never able to predict when or how our time will come. Of all the things on our lengthy to-do lists, making a will is one of the most important things you can do for your family’s future. Have you been putting off drawing up your will?

If this is something you haven’t managed to do yet, you’re not alone. We at Rouse Lawyers’ Estate Planning department understand that it can be very difficult to think about your own death. It’s even harder to imagine yourself in a situation where you’re unable to make vital decisions for yourself.

Sadly, however, life is uncertain and the consequences of not planning ahead can make things very difficult for your loved ones. They will already be battling to cope with the fact that they have lost you, but the situation will be made far worse for them if you didn’t make a will.

What happens if you die without a will?

We have an article on our practice’s website that describes more fully what happens when you die intestate (without having drawn up a will). Here are a few key points to consider:

• Your loved ones must assume the whole burden of sorting out your affairs and arranging the funeral.
• Your assets will be distributed according to the intestacy rules, which might not be what you wanted.
• It may not be the most tax-efficient way of distributing the assets and could cut down on income flexibility. The beneficiaries will be paid out their shares directly upon your estate being wound up.
• The administrative burden of demonstrating entitlement to various banks, corporations and government institutions will be greater without a will.

The situation will be almost as bad for your loved ones if you don’t die but are left unable to make decisions for yourself if there is nobody with your Power of Attorney who can make them for you.

Can I write my will myself?

Yes, you could – in theory, but it could very easily backfire if you get it wrong. Our Estate Planning department is staffed by professionals with extensive experience who can ensure your will is complete, effective and covers all eventualities. This includes minimising the chances of it being challenged in future and directing assets not normally included in a will.

How much does it cost?

The cost of making a will varies depending on your circumstances, but the team at Rouse Lawyers has a fundamental commitment to providing maximum value.

Your first consultation with us will be free and we will talk with you about your options. This way, you can make an informed choice about the best plan for you going forward. In most cases, we will work on a fixed-fee basis so you will know upfront what we are going to do for you and what the cost will be.

What an experienced Estate Planning lawyer can do for you

• Direct your assets in the most appropriate fashion, taking into consideration your personal and other assets including trust assets, superannuation, joint tenancies and business assets or interests.
• Assist you to appoint an executor to relieve your loved ones of the burden of paperwork, arranging the funeral and investing assets for the beneficiaries until administration of the estate is finalised, managing business interests, determining liabilities and distributing your assets in accordance with your will.
• Help you set up a Power of Attorney so that there is someone who can make health and/or financial decisions for you if you aren’t able to make them for yourself in the event of injury, sickness or even travel.
• We will provide you with a Personal Record Template which you can use to record all the details that your executor and beneficiaries might need to know. This might include the locations of all your assets, contact numbers for your accountant, financial planner, insurance details, family history or even the passwords for your phone or social media accounts to make their lives so much easier.

As I said at the beginning, thinking about your own death or incapacity isn’t a very cheerful thing to do. I can promise you, however, that investing an hour of your time in making a will now will make things so much easier on your loved ones in the long run and it will be a weight off your mind, too.

Tammy Parsons is a qualified, experienced Estate Planning lawyer. Contact Tammy for helpful advice about making a will.

Need advice about estate planning or making a will? Contact the experts at Rouse Lawyers today.

Need Body Corporate Management Advice? This Case Study Is A Must-Read

Body Corporate Management Case Study: The Most Expensive Balcony In Queensland?

The High Court has recently overturned a Queensland Court of Appeal decision to find in favour of a body corporate, which was fighting an owner’s attempt to use common property airspace to expand two balconies in his apartment.[i] The essential issue before the High Court was whether the body corporate had acted reasonably in refusing the owner’s request.

Always get advice from a reputable property lawyer if you face challenges with body corporate management.

Body corporate case study – background

An owner at Viridian Noosa Residences wanted to join his two existing balconies, and the space in between them, to create one deck. To do so, he required the exclusive use of common property airspace – 5m2 – between the two balconies.

To proceed with the extension, the owner needed a resolution without dissent at a general meeting of the Body Corporate. In August 2012, the owner put his motion at an extraordinary general meeting, however some lot owners voted against it.

The owner then applied to the Commissioner for Body Corporate & Community Management arguing that the Body Corporate acted unreasonably in voting against the motion. In September 2013, the Commissioner found that the Body Corporate had acted unreasonably and allowed the owner to proceed with the work.

In response to the Commissioner’s decision, two of the dissenting owners appealed the decision to the Queensland Civil and Administrative Tribunal (QCAT). In October 2014, QCAT overturned the Commissioner’s decision stating that the decision of the Commissioner’s had the effect of “overriding the will of a substantial majority of owners”.[i]

The owner appealed QCAT’s decision to the Queensland Court of Appeal who found, in November 2015, that the Commissioner’s decision was not wrong in law and QCAT should not have set it aside.

The dissenting owners then challenged the Court of Appeal’s decision in the High Court.

The High Court ruling and result

The High Court ultimately sided with the Body Corporate, finding that they had, in fact, acted reasonably and overturned the Qld Court of Appeal decision. This effectively restored the original decision of the Body Corporate made more than four years ago.

In discussing what it meant to act “reasonably”, the High Court stated that:

“opposition to a proposal that could not, on any rational view, adversely affect the material enjoyment of an opponent’s property rights may be seen to be unreasonable. Opposition prompted by spite, or ill-will, or a desire for attention, may be seen to be unreasonable in the circumstances of a particular case. But, as is apparent from the foregoing reasons, the adjudicator, the Tribunal and the Court of Appeal all appreciated that this is not such a case.”[i]

Importantly, the High Court made it clear that:

“the proposal in question was apt to create a reasonable apprehension that it would affect adversely the property rights of opponents of the proposal and the enjoyment of those rights. In these circumstances, opposition of the lot owners who dissented from the proposal could not be said to be unreasonable.”[ii]

What does this mean for body corporate managers?

Prior to this decision, there was a great deal of uncertainty about decisions of body corporates, which could be reversed on appeal for being “unreasonable”. With this High Court decision, a body corporate should find it easier to assess whether a proposed decision is “reasonable”, allowing them to take appropriate steps to reduce the risk of such a decision being held to be unreasonable.

Body corporate management is a complex legal environment, which impacts owners, investors and tenants alike. This High Court decision is one of many cases setting precedents for future decisions made in this area. If you have questions about your involvement with a body corporate, the Property team at Rouse Lawyers can help. Avoid turning property decisions into expensive legal challenges!

Need help and advice about any aspect of body corporate management? Contact the Property team at Rouse Lawyers today.

 

 

[i]^{Ainsworth v Albrecht [2016] HCA 40.}

[ii] ^{Re Body Corporate for Viridian; Kjerulf Ainsworth & Ors v Martin Albrecht & Anor [2014] QCATA 294, [1].}

[iii]^{Ainsworth v Albrecht [2016] HCA 40, [63].}

[iv]^{Ainsworth v Albrecht [2016] HCA 40, [64].}

 

Can I keep my business if the franchisor goes bust?

Purchasing a franchise is a big decision. For a franchisee, their success or failure depends in large part on the reputation and success of their adopted business. Unfortunately, it’s all too common for franchises to fall apart, leaving their franchisees in dire trouble. You might remember the saga of Pie Face, or the appointment of administrators to Eagle Boys Pizza.

So what happens when a franchise goes bankrupt or bust?

Who owns the Intellectual Property

Often, the intellectual property associated with a franchise will not actually be owned by it directly. Intellectual property comprises things like brand, trademarks, business names. In many cases, a separate company is usually set up for the sole purpose of owning the intellectual property. This company then ‘licences’ the use of the intellectual property to the franchisor. If problems arise with the business, then the IP holding company can sever the agreement. This protects the intellectual property itself, but can cause problems if franchisees want to continue to use it.

A good way to avoid this is to negotiate an agreement between the IP holding company which covers what happens if a franchise fails. This can allow the franchisee to continue trading under the brand name, even if the franchise fails.

What are the franchisee’s rights under the Franchise Agreement?

In the majority of cases, very little. Most Franchise Agreements don’t protect franchisees from problems arising with the franchisor. In fact, common practice dictates that only the franchisor will be able to sue for insolvency etc.

If the franchisor does fail, and there is no agreement between the franchisee and the IP holding company, things can get messy. In this case, a franchisee will have no choice but to ‘wait and see’.

If you are a franchisee, the most prudent thing to to is arrange for some protection under your Franchise Agreement. It is possible that such an agreement might be dismissed by an administrator, but nevertheless, it might help you get out of a tight spot.

If you purchase most of your products from the franchisor, you could also run into difficulty buying goods. In the event of a cataclysmic failure, you might be left trying to source goods and services through third parties. The same holds true for equipment,

If administrators and liquidators are appointed, they have the power to cancel some Franchise Agreements. Another possibility is that the liquidator or administrator may attempt to sell the whole of the franchise system. In that case, the franchisee will be effectively sold off to a new franchisor as part of the deal. During the sale process, the franchisee will be obliged to pay ongoing franchise and marketing fees to the liquidator.

If administrators and liquidators cannot find a purchaser, franchisees may be forced to close the doors and walk away from their businesses. The franchisee could continue operating their business under a new name, but without the goodwill attached to the franchise, this could be hard work.

Need advice about signing a lease for your business premises? Talk to the Franchising team at Rouse Lawyers. Contact us today!

How to minimise your risks as a franchisee

Entering into a Franchise Agreement is a long-term commitment, and making wrong decisions can affect your bank balance, health and your relationships.

Before you sign on the dotted line, here’s some important steps you can take to minimise your risk.

Don’t rush

It’s a good idea to think strongly about whether you want to run a franchised business. Remember that in a franchise, you must follow the rules laid down by the franchisor. These can be strict, and you might find yourself dealing with more red tape than expected.

If you are opening a franchised business at a greenfield site, you also need to ensure that you have sufficient capital to start a business. This includes the ability to survive any losses you may incur while you build your franchise. Make sure that you have the capability to raise finance, and decide whether you are prepared to put your assets at risk.

Choose the right franchise

Whilst you may have your heart set on a particular franchise, there are many great options to pick from. Ask yourself:

1. What is the franchisor’s business background and experience?
2. How long has the system been in operation?
3. How many franchisees are there?
4. How many franchisees have started, sold or ceased to operate within the past year?
5. How extensive is the training provided?
6. What are the fees, both upfront and ongoing?
7. What support does the franchisor provide in exchange for your fees?

Before you sign a franchise agreement, the franchisor is required to provide you with a disclosure document. In an ideal world, this will provide answers to many of the questions above. A key part of any disclosure document is the contact details for existing and former franchisees. It’s a good idea to should contact as many current franchisees as you can, and find out whether they are happy with their business. Be smart about this — don’t just contact franchisees recommended by the franchisor. Try contacting former franchisees, too. It can be instructive to find out why they left.

The more you investigate, the more comfortable you will feel. Don’t sign anything until you’re sure you’re going to be happy with your decision. The worst thing you can do is rush headlong into a dodgy deal.

Choose the right structure

A lawyer and an accountant will help you choose the right structure for your business. Whether you enter into the franchise as a sole trader, partnership, company or trust, making the right decision from the outset is essential. Each structure is different, and the most suitable structure will depend on your circumstances.

Expect the best but plan for the worst. Investing in the right structure can limit your liability and help protect your personal assets if the business goes belly-up. The right structure can also help with tax minimisation if your business becomes a roaring success.

Take detailed notes

Never rely on a promise or representation regarding the potential for the business without doing your own research and investigations. If a franchisor makes a promise about something which is not specified in the franchise agreement or disclosure document, make sure this is recorded in writing. A common way of dealing with promises is to sign something called a “prior representation deed”, which details exactly what promises are going to be relied upon.

Communicate

Remember that franchising is not a business – it is a way of doing business. The franchisor has a proven system for success and has opted to duplicate that system by creating franchises. Don’t assume that because a franchise is your business, you can run it any way you want. If the franchise agreement restricts your products, for example, you must comply with those restrictions. Making changes to your business can also require getting the franchisor’s prior approval in writing.

Adhere to time limits

If your franchise agreement allows you to renew for a further term, diarise the time limits. The timeframes given to you are probably strict. If you miss the timeframe, then the franchisor has no obligation to grant you a renewal. It’s also important to remember to renew your lease. After all, you don’t want to renew your franchise agreement only to find that you don’t have a store to operate from!

If you receive a notice from your franchisor claiming that you’re in breach of your agreement, act on it immediately. Breach notices almost always come along with a timeframe. Whether it is paying your outstanding fees or speaking to your lawyer about your options, if you don’t comply, your franchisor could terminate the franchise agreement.

Need advice about signing a lease for your business premises? Talk to the Franchising team at Rouse Lawyers. Contact us today!

 

 

 

 

 

 

Foreign Resident Withholding Tax – The Facts

Foreign Resident Withholding Tax – Practical Effects

The general thrust of the new foreign resident withholding tax regime is to require a purchaser to withhold 10% of the purchase price on acquisitions from foreign vendors of real property (real estate), or shares in a company that holds real estate.
However, the rules apply to all transactions involving real property and shares in companies, even if between two residents, unless steps are taken to fit within an exclusion.

Key elements of the new regime

Direct interests

- The regime applies to all transactions involving taxable Australian real property (including a mining, quarrying or prospecting right) exceeding a market value of $2million just after the transaction, even if the vendor is a resident.
- Company title is also treated as a direct interest.
- The obligation is to withhold 10% of the 1st element of the cost base, usually the purchase price or the varied amount if the ATO provides a variation (even if the transaction would not be liable for CGT e.g. deceased estates, CGT rollover). Note: On 6 September 2016 an ATO Legislative Instrument was registered that varied the payment to nil for assets passing under a deceased estate. The instrument also applies to assets passing under a joint tenancy.
- The $2 million threshold is based on market value, not the purchase price. If only a partial interest is being sold, the $2 million threshold applies to the value of the whole property.
- For transactions with related party or at an undervalue, the obligation to withhold is based on market value rather than purchase price
- All vendors must obtain a Clearance Certificate for a period covering the time the transaction is entered into.
- Declaration by the vendor (see below) will not be sufficient.

Indirect interests

- Withholding is only required if you know or reasonably believe that any vendor is a foreign resident; the entity has an address outside Australia (according to any record about the transaction) or an amount or financial benefit is payable to a place outside Australia (and you do not reasonably believe that the entity is an Australian resident), the entity has a connection outside Australia of a kind specified in the regulations; or the interest is a company title interest.
- Clearance Certificate is not relevant.
- No monetary exclusion – applies to shares with a value greater than nil.
- Shares are only covered if they fall within the concept of indirect Australian real property interest, which does not cover all companies or trusts that own real estate. The company or trust must pass a non-portfolio interest test and a principal asset test.
- Also applies to options and rights to acquire TARP or indirect Australian real property interests (para 1.72 of EM).
- Excluded if listed on an approved stock exchange; or conducted using a crossing system.
- Withholding is not required if, before you pay the ATO, the entity gives you a declaration that the entity is an Australian resident or the shares are not an indirect Australian real property interest for a period covering the time the transaction is entered into, and you do not know the declaration to be false.
- The declaration is of no effect if given more than 6 months before the time payment would otherwise be due to the ATO.
- Penalties for declarations that are false or misleading in a material particular: 120 penalty units if you know it is false or misleading, 80 penalty units if you were reckless in making the declaration and 40 penalty units if you did not take reasonable care in making of the declaration.

Variations

- Variation if 10% exceeds tax on profit.
- Variations at discretion of ATO, but the Commissioner must have regard to the need to protect a creditor’s right to recover a debt.
- Applications for variations may be made by the vendor, the purchaser or creditors of the purchaser.

Other exclusions

- Applies to acquisitions on or after 1 July 2016; that is, only to contracts entered into after that date.
- An amount is already required to be withheld from a withholding payment relating to the transaction.
- Certain securities lending arrangements (s 26BC(3) (a)(ii) of the Income Tax Assessment Act 1936 (Cth))
- Insolvency: The vendor is a company subject to certain arrangements for insolvency and external administration (paragraph 161A(1)(a) of the Corporations Act 2001(Cth)).
- Bankruptcy: Transaction occurs in administration of a bankrupt estate or other bankruptcy arrangements.
- Circumstances that are, under a foreign law, the same or similar to those in any of the above subparagraphs.
A purchaser is discharged from any liability to pay to the vendor, a creditor or any other person, the amount it pays to the Commissioner under the regime.
A purchaser paying an amount to the Commissioner must apply to register as a withholder.

Practical implementation

Does the foreign resident withholding tax involve taxable Australian real property or interests in entities with taxable Australian real property?

Direct interests

- Includes Company title.
- Market value of the whole property exceeds $2 million (irrespective of purchase price, and includes transactions not liable for CGT).
- If the vendor is an Australian resident, they must obtain a Clearance Certificate.
- If any vendor is a foreign resident, they must obtain a variation if amount withheld will exceed tax liability or some vendors are Australian residents.

Indirect interests

- No monetary exclusion – applies to shares with a value greater than nil.
- If the vendor is an Australian resident, they must include a Declaration in the agreement for sale of shares, units or other equity interest.
- If any vendor is a foreign resident, consider exclusions. If the interest is not an indirect Australian real property interest, include declaration in agreement.
- If any vendor is a foreign resident, obtain a variation if amount withheld will exceed tax liability or some vendors are Australian residents.
- Additional declaration required if declaration given more than 6 months before the required time.

Need expert advice about selling real property and the foreign resident withholding tax? Speak to the Taxation team at Rouse Lawyers. Contact us

Franchisee? Here’s What You Need To Know Before Signing A Lease

What You Need To Know About Signing A Lease

A lease is a legally binding agreement to pay specific fees for a set term. Just like franchise agreements, leases are governed by the Franchising Code of Conduct (Code) and have their own guidelines.

In Queensland, businesses that are retail in nature and/or situated in a retail shopping centre are subject to the Retail Shop Leases Act 1994 (RSLA). There is similar legislation in other states and territories.

Before signing a lease, there are some important considerations.

1. Offer to lease

The time to negotiate the key terms of the lease, such as rent, reviews and costs, will be in the offer or agreement to lease (OTL). When you sign an OTL you’ll commonly pay a deposit of one month’s rent. Whether the OTL is binding on you will depend on how the document is drafted. If you have a change of mind, you may be able to pull out of the OTL and only forgo your deposit.

2. Legal and accounting advice

If the RSLA applies, you must obtain advice from both a lawyer and an accountant and provide the landlord with certificates from your advisors. Even if the RSLA does not apply, it is prudent to still obtain legal advice because every lease is different and will usually be drafted heavily in favour of the landlord. Remember, there is always room for negotiation of troublesome clauses.

3. Due diligence and disclosure statements

Just like a franchise agreement, carrying out due diligence before signing a lease is vital. The landlord will not warrant that the premises are suitable for your business, therefore you need to determine the suitability of the location and whether the rent is reasonable.

If the RSLA applies, the landlord must provide you a Disclosure Statement which outlines various details about the premises and its location.

4. Timeframes

For retail leases, the landlord must provide their Disclosure Statement to you and a copy of the lease at least 7 days before you sign the lease. A landlord will rarely give you access to the premises until the lease is signed, so always be mindful of matching the commencement date with that under your franchise agreement. As a franchisee in Australia, you should also be mindful of the disclosure and cooling off periods for franchise agreements under the Code.

5. Rent and outgoings

It is common for leases to have a set rent for the first year and then annual increases thereafter. The lease should state whether the increase is by a fixed amount, CPI or a review to market rent.

Outgoings are usually based on the floor area that the premises bear to the whole building. 100% of outgoings will be payable if you are leasing the whole building. A proportion will be payable for a store in a larger centre. Rates, water access charges, waste removal and any other charges the landlord incurs in respect of the premises will be included in outgoings.
If it’s a retail lease the landlord cannot bill you for land tax.

Sometimes the landlord will invoice you once they receive an account from the service provider, or they might estimate the outgoings for the following year and invoice you by equal proportions monthly with rent.

6. Landlord’s legal costs

For retail leases, the landlord must pay their own legal costs for preparing the lease. If the RSLA does not apply, you will likely receive a bill for this. Remember, you can try to negotiate a cap on these costs when negotiating the lease.

If the lease is to be registered on the Title to the property, this will usually be at your cost. Registration is vital to protect your interests for leases over 3 years in length.

7. Term

Leases are for fixed terms, therefore it is important to match the term with your franchise agreement. There will commonly be options to renew the lease for further terms. Be very mindful of the timeframe under the lease to exercise your option. If you miss the deadline then the landlord has no obligation to grant you the option.

There will also be conditions applicable to exercising an option. The landlord might have the right to increase the rent and/or have you refurbish your store. Again, try and match up any refurbishment timelines with those under your franchise agreement.

8. Landlord’s approval

Because the landlord owns the premises, always remember to first obtain their written approval before carrying out any changes. Most leases are strict and will require approval before starting any fit-out works, installing signs or even attending to a fresh coat of paint. As a franchisee in Australia your franchisor may require a specific store design, so ensure the landlord will agree to this before you sign the lease.

9. De-fit

Never assume that you can just hand over the keys to the landlord once the lease ends. Leases will commonly provide that you must remove all of your fit-out and return the premises to the condition they were in when the lease originally commenced.
You may also be required to de-fit and return the premises to a bare shell. De-fits can be expensive, sometimes tens of thousands of dollars, so be sure you know where you stand on this matter before you enter into a lease agreement.

10. Representations

Finally, before signing a lease, always ensure your entire agreement with the landlord is recorded in the lease. This includes any representations or promises made by the landlord that may have impacted on your decision to enter into the lease.

Need advice about signing a lease for your business premises? Talk to the Franchising team at Rouse Lawyers. Contact us today!

It’s that time of the year again – Disclosure Document updates

Well, it’s that time of year again! If you’re a franchisor, it’s time to update your disclosure documents. You’ll need to have finished this within 4 months the end of your financial year. This includes preparation of financial reports for the financial year. For franchisors whose financial year ends on 30 June, you have until 31 October to finalise your reports and disclosure documents.

Updating your documents is an important part of running a franchise system and is mandatory under the Franchising Code of Conduct (the Code).

What does the annual update entail?

When carrying out their annual update, franchisors should consider the following details:

1. Financial details

These must be prepared either in accordance with sections 295 to 297 of the Corporations Act 2001 or by an independent auditor. Your disclosure document must include financial reports for the last 2 financial years. The franchisor must also sign a statement confirming their solvency and ability to pay its debts.

2. A list of current franchisees.

Have there been any new franchisees, sales of existing businesses, terminations of franchise agreements, or franchisees whose operations have ceased?

3. Financial information and payments required under Franchise Agreements.

Have there been any fee increases? For example, in some franchise systems fees increase annually in line with CPI increases.

4. Changes to the intellectual property

Has the franchisor rebranded, introduced a new logo or registered any new trade marks?

5. Major capital expenditure required by franchisee.

Does the Disclosure Document sufficiently cover everything, for example the expenses involved in a store upgrade? An upgrade can include a lot of different things including new software and point of sale systems, signage, furniture and store lay out.

Once updated, the Disclosure Document must be signed by a director or officer of the franchisor.

Failure to update

Failure to comply with disclosure obligations under the Code can result in an infringement notice ($9,000 per breach) or a penalty (up to $54,000 per breach) from the ACCC.

However, exceptions may be granted if no

Franchise Agreements were entered into during the previous financial year (which includes new franchise grants, renewals, transfers or variations to existing Franchise Agreements), and in

the franchisor’s reasonable opinion, they will not be entering into any new Franchise Agreements, renewals, transfers or variations within the next 12 months.

What to do after you update

Updated disclosure documents don’t sit in a draw untouched. They need to be provided:

1. To a prospective franchisee on the grant of a new franchise.

2. To a buyer on the sale of an existing franchisee’s business.

3. To an existing franchisee during the renewal of their Franchise Agreement.

4. To an existing franchisee varying, extending or extending the scope of their Franchise Agreement (for example, extending the term, changing the territory or any other material provision of the Franchise Agreement).

Existing franchisees also have the continuing right to request a copy of the current Disclosure Document (once every 12 months). The franchisor must provide a copy within 14 days of the request. However, if the franchisor has utilised the exception above and not undertaken an annual update, the franchisor must update their disclosure document. Franchisors have 2 months from receiving the request to update their document and provide it to the franchisee.

When is the update required?

Although an update is only required once per year, a franchisor must notify all of its current franchisees within 14 days if any ‘materially relevant’ facts arise. These can be found under clause 17 of the Code and include:

1. Investigations by a public agency (e.g. ASIC) or judgments against the franchisor.

2. Legal proceedings instituted against the franchisor by at least 10% or 10 franchisees (whichever is lower).

3. Change of ownership or control of the franchisor, its intellectual property or the franchise system.

4. The franchisor becoming externally administered.

If any of the above arise, franchisors don’t need to provide an updated disclosure document – they only need to let franchisees know about the ‘materially relevant facts’.

If any ‘materially relevant’ facts happen between annual disclosure document updates, and a franchisor needs to provide a current Disclosure Document to a franchisee, then details of those facts must be provided to the franchisee in a separate annexure to the Disclosure Document.

Disclosure of ‘materially relevant’ facts is essential if you want to keep your franchise agreements. The Courts have set aside franchise agreements, as well as awarding damages, in situations where franchisors have failed to provide adequate and up-to-date information on materially relevant facts.

Marketing funds

If a franchisor operates a marketing fund, it must be audited unless 75% of franchisees who contributed to the fund vote otherwise. A marketing fund must also be audited within 4 months of the end of the franchisor’s financial year. This audit will cover the fund’s receipts and expenses for that financial year. The audited statement and audit report must be provided to franchisees within 30 days of its preparation.

If you need help with a franchise agreement or disclosure document, Speak to the team at Rouse Lawyers. Contact us today!

Here’s What The 2016 Budget Means For You And Your Business.

2016 Budget Pointers

The passing of each federal budget is of interest to those of us that practice in the tax structuring sphere. We will be keenly conscious of changes that may impact upon strategies that have been used previously and looking for opportunities for the implementation of new strategies.

Topic	Commences	Comments
Business Taxes
Small business entity turnover threshold increase	1 July 2016	** Threshold will be increased from $2m to $10m for small business income tax concessions, with the exception of the small business CGT concessions and the unincorporated small business tax discount.NOTE: $10 million threshold applies to the small business restructure rollover.
Small business tax discount increase	Phases from 1 July 2016	** Increased in phases over 10 years from 5% to 16%. The existing cap of $1,000 per individual for each income year will be retained.NOTE: This will effectively reduce the amount of income required for the full offset of $1000 from about $61,500 to $19,200. It now has a favourable comparison to the reduction in the tax rate for small business companies.
Company tax rate will be progressively reduced	Phases from 1 July 2016	** Reduced to 25% over 10 years.
Transfer pricing amendments	1 July 2016	Addresses transfer pricing issues relating to controlled transactions involving intangibles.
40% diverted profits tax	1 July 2017	Applies to company groups with global annual revenue of $1b or more.
Investment in early stage innovative companies		Includes: • a 20% non-refundable tax offset capped at $200,000 per investor per year; and a capital gains tax exemption, provided investments are held for at least three years and less than 10 years. The amendments include: reducing the holding period from three years to 12 months for investors to access the CGT exemption; a time limit on incorporation and criteria for determining if a company is an innovation company under the definition of ‘eligible business’; requiring that the investor and innovation company are non-affiliates; and limiting the investment amount for non-sophisticated investors to qualify for the tax offset to $50,000 or less per income year.
Division 7A amendments	1 July 2018	Targeted amendments will be made to improve the operation of Division 7A including: a self-correction mechanism for inadvertent breaches of Div 7A; appropriate safe-harbour rules to provide certainty; simplified Div 7A loan arrangements; and a number of technical adjustments to improve the operation of Div 7A and provide greater certainty. The above are based on a number of recommendations from the Board of Taxation’s post-implementation review of Div 7A. NOTE: This announcement is merely to consult on the recommendations of the Board of Taxation rather than announcing a law change at this point.
Consolidated groups	1 July 2016	A consolidated group that acquires a subsidiary with deductible liabilities will no longer include those liabilities in the consolidation entry tax cost setting process.
Consolidated groups – securitisation arrangements	3 May 2016	Liabilities will be disregarded if the relevant securitised asset is not recognised for tax purposes. This integrity measure announced in the 2014/15 Federal Budget will be extended to non-financial institutions.
Small business CGT concessions		No change announced.
Non-portfolio dividend exemption		No change announced.
Personal Taxes
Increase in tax	1 July 2016	The 37% marginal tax rate threshold to increase from $80,000 to $87,000.
2% temporary Budget deficit levy		Expires at the end of the 2016-17 financial year – no proposal to extend.
CGT discount		No change announced.
Superannuation
30% rate on contributions	1 July 2017	The threshold for this higher rate of tax is reduced from $300,000 to $250,000.
Concessional contributions cap	1 July 2017	Reduced to $25,000 (including over 50s).
Transition to Retirement Income Streams	1 July 2017	Removal of income tax exemption on earnings that generally applies to pensions, and election to tax as a lump sum.
Non-concessional contributions ($500k cap)	1 July 2017	15 Sep 2016 announcement: This proposal will be replaced by reducing the annual cap to $100,000 and nonconcessional contributions can only be made by those with balances less than $1.6 million (to be indexed). Three-year bring forward rule remains.
Contributions for persons over 65	1 July 2017	15 Sep 2016 announcement: Not proceeding with proposal to remove the work test for people aged between 65 and 74.
Concessional contributions – catch up payments	1 July 2018	Catch up payments for shortfalls over the previous five years allowed for members with balances less than $500,000. 15 Sep 2016 announcement: Introduction delayed until 1 July 2018.
Deduction for personal superannuation contributions	1 July 2017	*** All individuals up to age 75.
Low income superannuation tax offset	1 July 2017	*** The LISTO will provide a non-refundable tax offset to superannuation funds for tax paid on concessional contributions up to a cap of $500. Applies to members with adjusted taxable income up to $37,000.
Spouse Contributions	1 July 2017	*** Income threshold of spouse increased from $10,800-$37,000.
Transfers the pension phase	1 July 2017	Cap of $1.6 million. NOTE: This change also applies to pensions commenced prior to the announcement, and in the writer’s opinion is retrospective. Strategies to address this change should be considered.
Anti-detriment provision	1 July 2017	Abolished from 1 July 2017.
Objective of Superannuation		Enshrined in a stand-alone Act. NOTE: Only enshrined until changed by a later amendment.
GST
Digital currencies		Discussion paper seeking to address the ‘double taxation’ of digital currencies released.
GENERAL 10-year enterprise tax plan		What is described as the 10 year enterprise tax plan is a combination of: increasing the small business entity turnover threshold; increasing the unincorporated small business tax discount; reducing the company tax rate to 25% over 10 years; increasing the 32.5% tax threshold from $80,000 to $87,000 from 1 July 2016;  targeted amendments to Div 7A, better targeting the deductible liabilities measure under the consolidation regime; enhancing asset backed financing; 2 new types of collective investment vehicles (CIVs); reform of the TOFA rules; extending the brewery refund scheme to domestic distillers and producers of low strength beverages; and reducing the WET rebate cap and tightening the eligibility criteria.

** Included in Treasury Laws Amendment (Enterprise Tax Plan) Bill 2016
*** Exposure draft released.
NOTE: This article is for general information only and should not be relied upon without first seeking advice from one of our specialist solicitors.

Need expert advice in commercial law, including the implications for you and your business of the 2016 Federal Budget? Speak to the team at Rouse Lawyers. Contact us today!

Have You Heard About Pending Changes To The Retail Shop Leases Act?

How Will Pending Changes To The Retail Shop Leases Act Affect Your Business?

In November 2016 some important changes to the Retail Shop Leases Act 1994 (Qld) (the Act) will take effect, impacting on both tenants and landlords.

When is a retail lease legally entered into?

According to commercial law in Australia, a retail lease is legally considered ‘entered into’ on the earlier of two important dates: the date the lease becomes binding on the parties, or when the tenant takes possession of the premises.

The changes to the Act now provide that a lease is entered into the earlier of:

1. when the lease is signed by all parties
2. when the tenant takes possession of the premises or
3. when the tenant first pays rent (other than a deposit to secure the premises).

Leases covered by the Act

In order to be covered by the Act, a lease must be for a retail shop situated in a retail shopping centre or used predominantly for carrying on a retail business. There are further detailed conditions which apply to meeting these criteria.

The changes to the Act now exclude the following from the definition of a retail shop lease:

1. premises with an area over 1,000 square meters
2. premises used for a non-retail business, which are located within:
a. a multilevel retail shopping centre where the proportion of retail businesses on that level is less than 25%
b. a single level building and the retail area of the building is less than 25% of the total lettable area of the building
3. ATMs and
4. vending machines.

Other key changes to note in the revised Retail Shop Leases Act

Outgoings

At the end of each period for which a tenant pays outgoings, a landlord must provide an audited statement that details the outgoings. These statements must now provide a breakdown of centre management costs. Outgoings will also now exclude excess paid by landlords on insurance claims.

Promotion funds

If a tenant is required to contribute towards a promotion fund, then the landlord must now provide a marketing plan at least 1 month before the start of each accounting period, unless the tenant waives this requirement.

Landlord’s costs

The Act prevents landlords from requiring tenants to pay the costs of the landlord preparing a lease. This does not extend to registration fees, which tenants can be required to pay.

The changes to the Act will now prevent landlords from requiring tenants to pay the costs of the landlord obtaining consent from their mortgagee to a lease. The changes will also allow the landlord to recover their reasonable costs (including legal costs) from the tenant for preparing the lease if the tenant agrees for the lease to be prepared, but then pulls out from the transaction.

Exercising options

When a landlord receives a notice from a tenant exercising an option to renew the lease, the landlord must now give the tenant a disclosure statement within 7 days. The tenant will also have the right to withdraw the exercise of its option within 14 days of receiving the landlord’s disclosure statement.

If rent is to be reviewed to market rent upon exercising an option to renew, the Act now gives the tenant 21 days from when they receive a notice from the landlord with the current market rent to then exercise their option.

Refurbishment

If a clause in a lease requiring a tenant to refurbish is to be enforceable, then it must provide details about the nature, extent and timing of the refurbishment. This means that a general obligation to refurbish when required by the landlord will be unlikely to be enforceable.

Relocation

If the premises are located in a retail shopping centre, then if the lease contains a provision allowing the landlord to relocate the tenant’s premises, the landlord will now be restricted to relocating to a premises within the centre.

Franchises

For leases where the tenant is a franchisor who intends to grant a licence to occupy the premises to a franchisee, then the tenant/franchisor can request an updated disclosure statement from the landlord. The landlord must respond within 28 days. The tenant/franchisor will need to pay the landlord’s reasonable costs of preparing the disclosure statement.

Statements on assignment

The Act currently requires assignors and assignees to provide each other with disclosure statements at least 7 days before a new lease is entered into (i.e. 7 days before the assignment takes effect). The changes will now require the assignor to provide their statement at least 7 days before the earlier of entering into a contract for the sale of the business or from when the landlord is asked to consent to the assignment. The assignor must provide a copy of their statement to the landlord at the time they request consent to the assignment.

This means disclosure statements will need to be prepared at much earlier stages of a business sale transaction. The changes will also allow assignors and assignees to waive their 7 day disclosure period rights.

The ability to provide waiver notices will be a welcome change for parties eager to settle on a particular date, but would have been otherwise restricted by the disclosure periods.

Release of guarantors

Under the current terms of the Act, once a tenant assigns a lease to a new tenant (for example, upon selling their business), the existing tenant will be released from their obligations under the lease, provided the existing and new tenant provide all of the disclosure statements and advice reports required. This protection does not currently extend to guarantors.

Once the changes to the Act take effect however, personal guarantors will not be released of their obligations upon an assignment of lease. Accordingly, upon an assignment, the landlord will not have any recourse against either the previous tenant or the previous guarantors.

Watch this space!

This is only a brief summary of some of the changes that will be introduced with the forthcoming revision of the Retail Shop Leases Act 1994 (Qld). Some changes may only apply to leases entered into on or after the date the changes to the Act take effect, whilst other changes may apply to existing leases.

The commercial law experts at Rouse Lawyers can provide more information on these transitional arrangements, and all aspects of law involving shop leases, once the details have been released.

Need further information about retail shop leases or other aspects of commercial law in Australia? Contact the experts at Rouse Lawyers today.

Class action lawsuit over Dell-EMC merger still lingers

Dell Inc.’s proposed merger with EMC Corp. has prompted 15 class action lawsuits, and at least one of the suits is still being considered in a court of appeals, EMC reported Monday in a regulatory filing.

The Massachusetts-based technology giant reported that 13 of the lawsuits were filed “purportedly” on behalf of EMC (NYSE: EMC) shareholders, and two on behalf of shareholders of affiliate VMware Inc. (NYSE: VMW).

A consolidated lawsuit involving nine plaintiffs was dismissed in December 2015 but it has been under appeal before the Massachusetts Supreme Judicial Court since June. The $60 billion merger, which was overwhelmingly approved by EMC shareholders on July 19, is scheduled to be completed during the third quarter that ends Sept. 30, according to the EMC filing with the U.S. Securities and Exchange Commission.

Eleven of the lawsuits alleged the merger violated the fiduciary duties of EMC directors. Some lawsuits also alleged EMC "aided and abetted the alleged breaches of fiduciary duty by the directors."

Plaintiffs in the initial 15 lawsuits include several labor organizations such as IBEW Local No. 129 in Ohio, the City of Miami Police Relief and Pension Fund and the City of Lakeland Employees Pension and Retirement Fund, the filing indicates.

Read the article here:  http://www.bizjournals.com/austin/news/2016/08/10/class-action-lawsuit-over-dell-emc-merger-still.html