Are you prepared for mandatory data breach notification laws?

From 22 February 2018, the Privacy Act 1988 (Cth) will include a mandatory data breach notification scheme. Under the scheme, entities governed by the Privacy Act, often referred to as APP entities will be required to notify the Office of the Australian Information Commissioner (OAIC) and any affected individuals of ‘eligible data beaches’.

One only has to look to Uber’s recent admission of a worldwide data breach, exposing 57 million of its users, to understand why the introduction of mandatory data breach notifications in Australia is welcomed. Whilst providing comfort to many Australians, the scheme’s introduction will place the onus on Australian businesses to adequately prepare for these changes.

If you’re an APP entity, which includes businesses with an annual turnover of over $3million, Government agencies and a number of small business operators, this is what you need to know about the new scheme.

The scheme
Under the scheme, should an APP entity have reasonable grounds to suspect an ‘eligible data breach’ has occurred, the entity will be required to notify the affected individual/s and OAIC. An ‘eligible data breach’ occurs where there has been ‘unauthorised access to, unauthorised disclosure of, or loss of, personal information held by an entity’ and ‘the access, disclosure or loss is likely to result in serious harm to any of the individuals to whom the information relates’.

The notification requirements of the regime will include APP entities:

1. Conducting expeditious assessment of the suspected breach within 30 days of it becoming aware of such breach. An assessment involves:

a. Determing if an assessment is required, and identifying who will be responsible for conducting the assessment;

b. Gathering information in relation to the suspected breach – who had access to the information, what information is affected;

c. Evaluating the information, and identifying the breach as an ‘eligible data breach’.

2. Notify the OAIC and affected individual/s by:

a. Preparing a statement setting out the entity’s details, description of the breach, the kind of information concerned, and recommendations about what individuals should do in response to the breach;

b. Provide a copy of this statement to the OAIC and, if practicable, the affected individual/s.

Exceptions
There are some exceptions to the above notification requirements.

These include:

1.  Third parties – if another entity has already provided notifications in relation to the same data breach, as a result of share services arrangements; and

2. Remedial action – if an organisation takes remedial action whereby the breach does not result in serious harm, the breach is unlikely to be deemed an ‘eligible data breach’.

Penalties
Should an APP entity breach their obligations under the Act, civil penalties may apply. At present, the maximum civil penalty administrable is 2000 penalty units, or $1.8 million.

Preparation
Prior to 22 February 2018, businesses should review the adequacy of their practices and procedures to ensure that their obligations under the amended legislation can be met in the event of a data breach. Further, businesses should prepare a response plan, or amend their current plan, to allow for quick, efficient and lawful response to any suspected or actual data breaches.
In addition to the above considerations, a review of your business’ contracts with service providers and third parties should be conducted. This will ensure that each party is aware of its responsibilities in respect of the notification scheme is understood.

 
If you’d like to discuss the mandatory data breach notification laws, call Rouse Lawyers’ technology team on 07 3648 9900.

How to get out of a franchise

A franchise agreement is a legally binding commitment for the term of the franchise with restrictions on exiting early. Franchisors and franchisees must follow different steps if they believe they have grounds to unilaterally terminate the agreement. This will always depend on the circumstances.

What can franchisees do to end the franchise agreement?

Franchisees may wish to end a franchise agreement early for a variety of reasons. The business may not be as successful as hoped, or the franchise system may have failed to meet expectations. There are multiple options for getting out of the franchise agreement. Each come with their own risks and consequences and should be assessed on personal circumstances. Few are straightforward.

(a)   Cooling-off

Under the Franchising Code of Conduct (Code), franchisees have a 7 day cooling-off period to terminate a franchise agreement without giving a reason. The right must be exercised within 7 days of entering into the agreement or making a payment under the agreement, whichever the earlier. This doesn’t apply to the renewal, extension, variation or transfer of an existing agreement. For example, somebody buying an existing franchised business won’t have the right to cool-off.

If a franchisee terminates during cooling-off then the franchisor must refund any money paid by the franchisee within 14 days, less the franchisor’s reasonable expenses.

(b)   Sale of business

If a franchisee wishes to sell their business, a franchisor cannot unreasonably withhold consent to the sale. The franchise agreement will set out the conditions for a transfer. If these are followed and the franchisee establishes that the buyer can perform the obligations under the agreement to an equal standard, the franchisee is generally free to sell their business.

The existing franchise agreement will either be assigned to the buyer, or more commonly, the buyer will enter into a new franchise agreement with the franchisor. The outgoing franchisee and franchisor should enter into a written agreement to formally terminate the franchise relationship.

With exception to the cooling-off period or selling the business, a franchisee’s right to otherwise terminate a franchise agreement is limited.

(c)   Breach by the franchisor

The Code doesn’t grant franchisees the right to terminate a franchise agreement if the franchisor is in breach. However, some franchise agreements may allow a franchisee to terminate in some circumstances. This could include when the franchisor is in material breach of the agreement and has failed to remedy that breach within a specified time. Unless the agreement provides this express right, franchisees must rely on other legal rights which are set out below.

(d)   Walking away

Closing the doors early and abandoning a franchised business is not advisable. Franchisors will normally have the right to pursue the franchisee for damages. The landlord would have this same right if there’s a lease involved. If the franchisee’s directors have given a personal guarantee, then walking away could expose the personal assets of the guarantors to risk. Walking away should be an absolute last resort, and only after exhausting all options with an administrator or liquidation consultant.

What can franchisors do to end the franchise agreement?

Franchisors generally have greater flexibility in their ability to terminate a franchise agreement.

(a)   Franchisee breach

If the franchisee has breached a provision of the franchise agreement, the Code allows franchisors to terminate the agreement if:

1. the franchisor gives the franchisee a written notice:

(a)      setting out the provision which has been breached;

(b)      setting out what is required to remedy the breach;

(c)      providing a reasonable time to remedy the breach (which need not be more than 30 days);

(d)      stating the franchisor proposes to terminate the franchise agreement if the breach is not remedied; and

 2. the franchisee fails to remedy the breach accordingly.

If the franchisee remedies the breach, franchisors cannot rely on that breach to terminate the agreement.

(b)   Immediate termination

There are also certain circumstances under the Code which entitle a franchisor to immediately terminate a franchise agreement if the franchisee:

1. no longer holds a licence which they must hold to carry on the business;

2. becomes bankrupt or insolvent;

3. if a company, becomes deregistered by ASIC;

4. voluntarily abandons the business or the franchise relationship;

5. is convicted of a serious offence;

6. operates the business in a way that endangers public health or safety; or

7. acts fraudulently in connection with the operation of the business.

Franchisors would need a strong basis and reliable grounds for making the decision to terminate a franchise agreement for these reasons.

(c)   Contractual termination

The Code also permits franchisors to terminate a franchise agreement where the franchisee hasn’t committed a breach, but only if the agreement contains this express right. The franchisor must provide the franchisee with reasonable notice and reasons for the termination.

Note that such provisions could be found by a Court to be an unenforceable “unfair contract term” under the Competition and Consumer Act 2010. Franchisors would need justifiable reasons for terminating a franchise agreement using such a provision.

Are there other ways to end a franchise agreement?

There are various other legal remedies available to both franchisors and franchisees to bring a franchise agreement to an early end. The following are some common grounds, however others may be available depending on the situation.

(a)   Mutual termination

Franchisors and franchisees can mutually agree to bring a franchise agreement to an early end. This should always be done in writing.

If franchisees initiate the request, franchisors generally require an exit payment. It is reasonable for franchisors to be compensated for losing out on franchise fees they would otherwise receive if the franchise agreement had run its full term. Franchisors may instead agree to buy back the business from the franchisee, but usually for under market value.

Franchisors are often free to on-sell the business to a new franchisee once the termination is formalised. The former franchisee generally has no right to the sale proceeds.

(b)   Dispute resolution

If a dispute arises between the franchisor and franchisee and the dispute resolution procedure under the franchise agreement or the Code is initiated, it will often be mediated. Sometimes the resolution may be an agreement to terminate the franchise agreement. Mediation can assist the parties to negotiate a mutual exit if the franchise relationship is beyond repair.

(c)   Litigation

If litigation is commenced, a Court may be asked to bring a franchise agreement to an end or to treat the agreement as if it had never existed. There are many different reasons why a party to a franchise agreement may commence litigation, which can often follow an unsuccessful mediation. Some common grounds are misleading and deceptive conduct, misrepresentations, failure to adhere to the Code and repudiation. Court proceedings are costly and the outcome can never be predicted.

What are the consequences of ending a franchise agreement?

If a franchise agreement is terminated and the franchisee is found to be at fault, a franchisor may ask a Court for an order for damages equal to the monies the franchisor would have expected to receive had franchise agreement run for the balance of its term.

Franchise agreements normally otherwise outline what happens when the agreement ends. Franchisees will generally be restricted from using the franchisor’s brands and intellectual property, and will be bound to a restraint of trade.

Franchisors and franchisees should factor in these considerations and be mindful of the repercussions before acting to terminate a franchise agreement.

There are also penalties if franchisors or franchisees breach the Code. Breaches of some provisions will attract penalties of up to $63,000 per breach, and these breaches may lead to infringement notices issued by the ACCC for $10,500 per breach. Compliance with the Code must therefore be taken seriously.

Finally, always obtain legal advice on your options before taking steps to terminate a franchise agreement so that you are fully aware of any unintended consequences.

Need advice ?  Talk to the Franchising team at Rouse Lawyers. Contact us today!

Is my Company Constitution tax effective?

Many will think of the Constitution of their company as a predominantly commercial document setting out the powers and procedures for the making of decisions by directors and shareholders, and the rights attaching to shares in respect of dividends, voting and winding up.

As far as tax is concerned the main focus is to allow for different classes of shares.

However, the content of the Constitution has an impact on the tax results in at least three important ways:

1. Super contributions for directors;
2. Differential dividends;
3. Issue of shares of a different class.

Super Contributions for Company Directors

A tax deduction is generally available for contributions made by an employer for the benefit of an employee.

For a number of years the general view has been that deductions also apply for contributions for directors. A basis for this was that the income tax legislation allowed a deductions for superannuation contributions for persons employed by a company, and the legislation deemed directors to be employed by the company (the additional requirements that they be engaged in producing assessable income or in the business of the company would ordinarily be satisfied in a trading business).

However, were substantially changed in 2007 with the Simpler Super Regime.

The revised requirements for employer contributions run as follows:

4. A deduction is available for contributions for employees (directors do not fall within the ordinary meaning of employee);
5. Employees are deemed to include those falling within the extended meaning in the Superannuation Guarantee legislation;
6. There are also the conditions that the employee be engaged in producing the company’s assessable income or its business, that the fund is a complying fund and the employee satisfies certain age conditions.

The Super Guarantee legislation does not deem any director to be an employee. Rather, it deems a director “who is entitled to payment for the performance of duties as a member of the executive body”.

This means is that a director is not deemed to be an employee unless they are entitled to payment for the performance of duties. The simplest way to provide that entitlement is an appropriate provision in the Company Constitution, for example providing an entitlement of say $1000 per annum. Alternatively, a binding arrangement (preferably, in writing) for the payment of directors fees is required.

Doubts of the correctness of the above analysis were put to rest by the decision in Kelly v FCT (No 2) [2012] FCA 689. A deduction for a superannuation contribution in favour of a director was denied. The court rejected the argument that actual payment of an amount was sufficient. It held that payment and entitlement to payment are different concepts, and entitlement to payment can be provided by the company’s constitution or approval by shareholders in accordance with the Corporations Act 2001.

Differential Dividends

It is quite common for a company to have various classes of shares (although readers should be mindful that the issue a different class of shares can result in the small business CGT concessions not being available on a sale of the business or shares in the company).

The issue of a different class of shares is common where it is desirable to pay dividends to certain shareholders to the exclusion of other shareholders, or at a different rate.

To do so, simply having different class of shares is not enough. If you only have different classes of shares, then all shareholders will be entitled to a share of any dividend declared in accordance with the rights attaching to those shares.

What is necessary is that the Constitution gives the directors the power to pay dividends on a differential basis. A provision of this kind is as follows:

Where there is more than one class of shares on issue, the Directors can declare a dividend so that the dividend:

(a) is made to the holders of shares of any one or more class or classes of shares;

(b) made at a higher, lower or the same rate as the dividend declared on any other class; and

(c) excludes the holders of shares of any other class or classes;

provided that the shares in each class will participate equally in any dividend declared. The resolution which declares a dividend is valid, even if the resolution is passed by virtue of the votes of persons who receive the higher rate of dividend.

Issue of shares of a different class

The issue of shares of a different class may have a number of tax effects including loss of the small business CGT concessions and impact on the utilisation of the losses. In addition, whenever there is an issue of shares the value shifting provisions, debt/equity rules and dividends streaming provisions must be considered.

In respect of the small business CGT concessions, the existence of a Significant Individual is required for the 15 year exemption, retirement exemption and to apply the concessions on a disposal of shares. For there to be a Significant Individual, it must be the case that the relevant shareholder has rights in respect of voting and, importantly, any dividend or distribution of capital.

The reference to the word ‘any’ has the effect that where a shareholder owns shares of one class, but there is another class of shares on issue, a dividend could be paid on the other class with the result that the shareholder does not have rights in respect of any dividend. However, this special rule does not apply to redeemable shares (the ATO accepts this point in Taxation Determination TD 2006/77).

If you are looking to issue shares simply to enable dividends to be paid to a different person, it is preferable for those shares to be issued as redeemable shares. It is also preferable for the rights attaching to those shares to be such that they can be cancelled without tax effect.

Key Points

Special provisions are required for a Company Constitution to be tax effective and to support implementation of tax planning strategies.

Before implementing any of the above arrangements, specific advice should be obtained.

As part of general tax administration, we recommend all accountants undertake a review of their client’s Company Constitutions to ensure their tax planning is not frustrated.

Need advice? Talk to the Tax & Superannuation Team at Rouse Lawyers. Contact us today!

NOTE: This article is for general information only and should not be relied upon without first seeking advice from one of our specialist solicitors.

Third line forcing – a new relaxed approach

Changes to legislation usually tighten existing regulations. Recent changes to the provisions of the Competition and Consumer Act 2010 (Act) covering third line forcing are a pleasant departure from this norm.

Third line forcing is a form of exclusive dealing, where a business will only supply goods or services, or give a particular price or discount, on the condition that a person buys the goods or services from a nominated third party. If the person does not comply with the condition, then the business will refuse to supply the goods or services.

Franchisors often engage in third line forcing to ensure uniformity in the quality of the product or service offered to consumers by their franchise system. There are many benefits to this:

1. Consistency across a franchise system can benefit customers and increase the value of the franchise system.

2. Franchisees operating compatible equipment and purchasing the same goods creates a more efficient operation and management of the franchise system through, for example, increasing efficiency in training.

3. Cost and time savings for franchisees creates improved contractual relations and more efficient and effective bargaining between franchisors and suppliers.

Until 6 November 2017, third line forcing was a breach of the Act and a business was required to lodge a notification with the ACCC if they intended on engaging in this conduct without facing prosecution from the ACCC. The ACCC would allow a notification to stand where they were satisfied that competition in the marketplace had not been substantially lessened, and where the public benefit outweighed the detriment.

The recent changes to the Act essentially mean that third line forcing is no longer prohibited per se. Third line forcing will now only breach the Act if the conduct has the purpose, effect or likely effect of substantially lessening competition, in which case a notification must then be lodged with the ACCC.

This is a welcome change for the franchising industry and does away with burdensome administrative red tape for franchisors who place supply restrictions on their franchisees. Many arrangements which were previously notified to the ACCC no longer need to be notified.

Despite these changes, you should always carefully consider whether your conduct will affect competition in the market place or if it risks breaching other provisions of the Act and the Australian Consumer Law. At Rouse Lawyers we can assist with lodging notifications with the ACCC where appropriate, and advise on alternative ways to structure arrangements which will not breach anti-competition laws.

Need advice ?  Talk to the Franchising team at Rouse Lawyers. Contact us today!

 

How do I get value from a lawyer?

A lawyer can seem like an unnecessary expense when buying a franchise with so many other costs to consider. Remember that buying a business is one of the biggest decisions you’ll make in your life. Legal advice should be considered as an investment. Like any investment, there are a number of key ways to secure a good return.

1. Experience

Find a lawyer experienced in franchising who handles franchise-related issues on a daily basis. A specialist will know what to look for, identify red flags and point you towards what you should be looking at. They’ll also help you with the best way to structure your business.

At minimum, your lawyer should review your draft franchise agreement, disclosure document, lease and anything else you’ve been asked to sign before you sign anything. If you’ve already signed your franchise agreement, then your ability to negotiate changes will be limited. You’ll also be left with a costly problem if you have a change of mind and decide to not proceed, for instance if you cannot secure finance.

Franchise agreements are drafted by lawyers essentially so that only other lawyers can understand them. Your lawyer will be able to explain the key provisions in easy-to-understand terms and the reasons behind them. Understanding these reasons and the flow-on consequences is vital to ensure that you and the franchisor are both on the same page when it comes to your obligations.

2. Negotiation

Every franchise agreement and contract is up for negotiation. Your lawyer will identify the clauses in the franchise agreement which may not be in your favour and can assist with negotiating a more balanced agreement, but keep in mind that franchisors are generally hesitant to amend their documents unless you have good reasons. Your lawyer will also ensure that any promises made to you by the franchisor are recorded properly in the franchise agreement or ancillary agreement such as a prior representations deed. You should be fully transparent with what you tell your lawyer.

Engaging a lawyer to review your documents before you sign can save you money in the long-term. Knowing your legal rights from the outset will help you avoid breaching the franchise agreement, and will put you on notice about things you may not have considered or realised will affect your profit margin.

3. Compliance with the Franchising Code of Conduct

A specialist will advise you on your rights and obligations under the Code and the law in general. There are strict timeframes and other requirements under the Code governing franchises. Your lawyer can help you avoid landing in hot water with the franchisor or the ACCC.

4. Make the most out of your lawyer

Ensure your lawyer knows exactly what your expected scope of work is. They’ll tell you what is and isn’t included in their costs quote.

Come prepared. Read every document the franchisor has given you and every document you expect your lawyer to read. As you do this, highlight and make a list of questions about things you’d like clarified and covered off when you meet with your lawyer. Don’t dismiss these questions as “silly” – raising queries (however small) with a lawyer is often a prompt for your lawyer to dig deeper and ensure that your best interests are being protected. Taking the time to do this in the beginning will avoid a last-minute rush to sign your documents. Important things can be missed when you rush.

5. Your business partner

Finally, think of your lawyer as a business partner, not just someone who you’ll have a one-off meeting with. They’ll be happy to take your call and have a chat about anything which may arise during the course of your franchise. Whether you’re expanding, selling your business or involved in a dispute, a lawyer who knows your situation and history will be a valuable asset.

Need advice ?  Talk to the Franchising team at Rouse Lawyers. Contact us today!

On-selling your franchise – what you need to know

Like any business, once you establish your franchise the ideal goal is to build goodwill then on-sell it in the future for a profit. Whilst this may not be your short-term goal, it should nevertheless be kept in mind.

A franchise is an investment. So long as you have a franchise agreement in place you will have the right to sell your business and the franchisor cannot unreasonably withhold their consent to the sale. Like any business, the more profitable and successful your business is, the higher the price you can sell it for.

The process for selling a franchised business is different from a standard business and there are some important things to consider before selling:

Check the franchise agreement

The first step should be to carefully check the provisions of your franchise agreement covering transfer and assignment as there’ll be a process which must be followed. Every franchise system is different. Some will require you to obtain the franchisor’s prior consent to your advertisement before you list your business on the market or to the terms of your sale contract.

Some general conditions found in franchise agreements include:

1. The buyer meeting the franchisor’s selection criteria and completing the franchisor’s training program.

2. The payment of an assignment fee which will be a set amount or a percentage of your sale price.

3. Upgrade or refurbishment to your premises and/or equipment.

Right of first refusal

Many franchise agreements give the franchisor the right of first refusal. This means you must give the franchisor the opportunity to buy the business on the same terms and conditions as being offered to your buyer. If the franchisor does not take up the offer, only then can you proceed with your sale.

Contract

Your business broker/agent or lawyer will generally prepare the initial draft of your business sale contract. You will need a set of special conditions specifically drafted for the sale of a franchised business which should reflect any requirements under your franchise agreement and any conditions the franchisor has imposed on the sale. It’s very important that your contract is reviewed by a lawyer before you sign it.

The contract should specify who pays the franchisor’s fees. Generally, the seller will pay the assignment fee and the buyer will pay the training fee, however this is always up for negotiation.

Contracts are often subject to due diligence, meaning you’ll need to give the buyer copies of your financials for the business.

Franchisor consent

Once the contract is signed and you have provided all the information the franchisor reasonably requires to consider the sale, under the Franchising Code of Conduct (Code) the franchisor has 42 days to advise whether or not it consents to the sale. Once the franchisor grants consent they then have 14 days to withdraw it, but they must have a reasonable basis for doing so.

Signing the franchisor’s documents

The franchisor will generally require the buyer to sign a new franchise agreement for the balance of the term left on the seller’s franchise agreement. This is usually the franchisor’s then-current form franchise agreement on different terms and conditions to your agreement. Remember that the 7 day cooling off period under the Code doesn’t apply to the transfer of an existing business.

The seller should expect to sign a termination deed to formally end the existing franchise agreement. These generally include a release of claims, meaning once the sale is complete the seller cannot then bring legal action against the franchisor for any matter which occurred during the course of the franchise relationship. You’ll also be bound to any restraint under your franchise agreement.

The franchisor’s legal costs of preparing these documents will also need to be paid.

Lease

If you lease a premises then you will need to obtain the landlord’s consent to either assign your lease or grant a new lease to the buyer. Just like the franchise agreement, your lease will have a specific process to be followed. This will generally include the landlord approving the buyer as a tenant and the payment of the landlord’s costs.

Financed equipment

If you have a finance or rental agreement over any of your business’ equipment then you must either pay out the loan or organise for the agreement to be transferred to the buyer before settlement.

Conclusion

Finally, be patient and don’t lose sight of your goal of walking away with a profit. The sale process generally takes at least a couple of months and there are multiple parties involved with competing interests including you, the buyer, the franchisor, the landlord and banks for you and the buyer.

Need advice about On-selling your Franchise?  Talk to the Franchising team at Rouse Lawyers. Contact us today!

THE FIVE THINGS YOU CAN DO TO ASSIST IN A SMOOTH TRANSACTION WHEN BUYING A PROPERTY

Looking to buy? It doesn’t matter if it’s your first home, an investment or if you have done it a dozen times, it’s a big deal.

Here are the top five things you can do to ensure your purchase runs as smoothly as possible:

1. Forward us a copy of the Contract before you sign:

It is extremely important that you know your rights under the Contract and the critical dates and conditions contained in it. We normally suggest inserting building and pest, finance and due diligence conditions into your Contract so you will have time to research the property to be completely satisfied with your purchase and make an informed decision as to whether to proceed or not. The usual timeframe you have to satisfy these conditions is 7–14 days.

2. Talk to your bank or mortgage broker

Ideally, you should talk to your bank or mortgage broker before you start looking for a property. This will give you an idea of your borrowing capacity and purchase price range. Once you sign the Contract, get a copy to your bank or broker immediately so they can start the unconditional approval process. This usually involves the bank doing a valuation of the property and you meeting and satisfying other loan conditions. As mentioned earlier, most Contracts have “subject to finance” conditions which will give you 7-14 days to obtain unconditional approval.

3. Book your building and pest inspection

Book your building and pest inspection as soon as possible. You need to know exactly what you are buying and identify if there are any issues with the property you are purchasing.

Is there a pool on the property? If so, ask your agent if a Pool Safety Certificate has issued for the property. If one hasn’t issued the onus may be on you under the Contract to obtain a Pool Safety Certificate.

If your Contract is subject to Due Diligence, we will suggest researching the Council records and obtaining information of current building approvals.

If any issues are identified relating to any of the above, please speak with us as soon as possible. There are a number of options available to you if you are not satisfied with your enquires.

4. Remember, “Time is of the Essence”:

Keep in mind with all Queensland Contracts, time is of the essence. This means the time limits and deadlines specified in a contract must be met in order for the Contract to stay afoot. If you are unable to meet a deadline, and an agreement for an extension of time is not made, the Contract could be terminated. A good conveyancer can be relied upon to keep you informed of those critical time limits and deadlines.

5. Keep in touch!

We are only a phone call and always here to help. It is extremely important to us that your purchase runs smoothly and we have you settling on time and moving into your new home. We will make sure you are kept informed as your matter progresses. We will also liaise on your behalf to ensure other interested parties, such as agents, brokers and banks, are also kept in the loop.

Buying a property is an exciting time, but things can go wrong. When they do, you will want to be assured that you have the legal skillset of an experienced team to act in your best interest. At Rouse Lawyers, our conveyancing department is backed by senior property lawyers who will down tools and work with our conveyancing team to ensure your problem is solved quickly.

Need expert advice about selling property? Speak to the Property team at Rouse Lawyers. Contact us today!

The Five Things You Can do to Assist in a Smooth Transaction When Buying a Property

Looking to buy? It doesn’t matter if it’s your first home, an investment or if you have done it a dozen times, it’s a big deal.

Here are the top five things you can do to ensure your purchase runs as smoothly as possible:

1. Forward us a copy of the Contract before you sign:

It is extremely important that you know your rights under the Contract and the critical dates and conditions contained in it. We normally suggest inserting building and pest, finance and due diligence conditions into your Contract so you will have time to research the property to be completely satisfied with your purchase and make an informed decision as to whether to proceed or not. The usual timeframe you have to satisfy these conditions is 7–14 days.

2. Talk to your bank or mortgage broker

Ideally, you should talk to your bank or mortgage broker before you start looking for a property. This will give you an idea of your borrowing capacity and purchase price range. Once you sign the Contract, get a copy to your bank or broker immediately so they can start the unconditional approval process. This usually involves the bank doing a valuation of the property and you meeting and satisfying other loan conditions. As mentioned earlier, most Contracts have “subject to finance” conditions which will give you 7-14 days to obtain unconditional approval.

3. Book your building and pest inspection

Book your building and pest inspection as soon as possible. You need to know exactly what you are buying and identify if there are any issues with the property you are purchasing.

Is there a pool on the property? If so, ask your agent if a Pool Safety Certificate has issued for the property. If one hasn’t issued the onus may be on you under the Contract to obtain a Pool Safety Certificate.

If your Contract is subject to Due Diligence, we will suggest researching the Council records and obtaining information of current building approvals.

If any issues are identified relating to any of the above, please speak with us as soon as possible. There are a number of options available to you if you are not satisfied with your enquires.

4. Remember, “Time is of the Essence”:

Keep in mind with all Queensland Contracts, time is of the essence. This means the time limits and deadlines specified in a contract must be met in order for the Contract to stay afoot. If you are unable to meet a deadline, and an agreement for an extension of time is not made, the Contract could be terminated. A good conveyancer can be relied upon to keep you informed of those critical time limits and deadlines.

5. Keep in touch!

We are only a phone call and always here to help. It is extremely important to us that your purchase runs smoothly and we have you settling on time and moving into your new home. We will make sure you are kept informed as your matter progresses. We will also liaise on your behalf to ensure other interested parties, such as agents, brokers and banks, are also kept in the loop.

Buying a property is an exciting time, but things can go wrong. When they do, you will want to be assured that you have the legal skillset of an experienced team to act in your best interest. At Rouse Lawyers, our conveyancing department is backed by senior property lawyers who will down tools and work with our conveyancing team to ensure your problem is solved quickly.

Need expert advice about selling property? Speak to the Property team at Rouse Lawyers. Contact us today!

How to handle renewals with a difficult franchisee

This Article was previously published on the Inside Franchise Business website.

How to handle renewals with a difficult franchisee

Entering a Franchise Agreement (Agreement) with a franchisee is a commitment for the term of the franchise. Dealing with a difficult franchisee can be problematic when locked into a contract and trying to maintain a business relationship. Whether it’s a clash of personalities or contrasting business values, a franchise relationship can easily become strained.

A “difficult” franchisee can range from someone who frequently questions your business motives, to someone who pushes every boundary under the Agreement. They may or may not be a well performing franchisee.

Many Agreements grant the franchisee an option to renew the Agreement for a further term. Renewal is not an automatic right. The franchisee will only be entitled to exercise the option if certain criteria under the Agreement are satisfied within a certain time. Every Agreement is different. Some common criteria include there being no un-remedied breach, substantial compliance with the Agreement throughout the term, executing the franchisor’s then-current Franchise Agreement, paying a renewal fee and refurbishing or upgrading the premises/equipment/vehicle to the franchisor’s then-current standards.

Timeframes are important. The franchisee must generally exercise the option within a certain time before the end of the Agreement. The Franchising Code of Conduct (Code) also requires franchisors to tell the franchisee whether you intend to renew the Agreement at least 6 months before it expires.

If a franchisee is entitled to an option, has satisfied all the criteria set out in the Agreement and validly exercises the option, you must honour the option. It is not sufficient to simply decide you no longer wish to continue with the franchise.

Franchisee breach is the most common reason for not renewing a franchisee. It would generally need to be breach of a major obligation to justify grounds for non-renewal. This would be determined on a case-by-case basis with reference to the terms of the specific Agreement. It may not be enough for the franchisor to simply believe that the franchisee is in breach. The formal procedure under the Code may need to be followed by telling the franchisee about the breach and providing a reasonable time for it to be remedied to constitute a valid breach. If the breach is remedied, you may need to honour the renewal.

If you wish to rely on past breaches, then the Agreement must state that substantial compliance is a condition of renewal (rather than simply stating that the franchisee is not in breach of the Agreement at the time of the renewal). You must always act reasonably. You would be in a stronger position if the formal notice procedure under the Code is followed each time the franchisee is in breach. In other words, there should be a written record of non-compliance clearly communicated to the franchisee.

The Code requires both franchisees and franchisors to act in good faith in dealings with each other. If you did not have a valid legal basis or reasonable and justifiable grounds for not renewing a franchisee, the franchisee may argue the good faith obligation has been breached. However, the obligation to act in good faith does not prevent a party from acting in their legitimate commercial interests.

You must also be mindful to treat franchisees equally. The same criteria for considering a renewal should be applied to all franchisees within your system. It would not be reasonable to renew one franchisee whilst rejecting another in the same circumstances.

It will often be a condition of renewal that the franchisee signs the franchisor’s then-current-form Franchise Agreement which may be on different terms to the existing Agreement. It could be unconscionable for you to present an Agreement with onerously higher payment obligations or vastly different terms to discourage the franchisee from proceeding with the renewal. However, courts have held that franchisors can change payment structures and other obligations on a renewal if such changes are reasonable and in response to the current commercial market.

If you don’t have clear grounds to reject the renewal but hold justifiable concerns, then it may be reasonable to impose certain conditions on the renewal. For example, the franchisee undergoing further training or formulating and committing to a business plan. The renewal could be seen as an opportunity to work with your franchisee to resolve issues and improve performance.

Disputes can be costly for both parties if the franchisee challenged your decision to not renew. The ACCC can also impose penalties for breaching the Code.

Note that in certain situations the restraint of trade provisions under the Agreement may not be enforceable if you did not renew. This may apply if the Agreement was entered after 1 January 2015, the franchisee was willing to extend the Agreement, was not in breach, claimed compensation for goodwill of the business, and you failed to pay genuine compensation for goodwill.

The best advice for handling a renewal with a difficult franchisee is to maintain composure, act in a professionally commercial manner and keep communication open. Whilst this is easier said than done, it is essential to remember that a franchise is a business relationship for the financial benefit of both parties. Sometimes the relationship may be beyond repair, but the commercial goal should always be remembered. Having a well-drafted Franchise Agreement from the outset will also improve your bargaining power should issues ever arise.

Need advice about your Franchise Agreement?  Talk to the Franchising team at Rouse Lawyers. Contact us today!

6 steps to set up a franchised business

This Article was previously published on the Inside Franchise Business website.

There are six simple steps to follow if you’re planning to buy a franchise:

Step 1 – Research

There are many franchise systems to choose from.  A franchise is a long-term commitment. Ensure you do thorough research and due diligence before you decide on a system. Get as much information and as many figures as you can. You don’t need a business degree to run a franchise, but it is recommended that you do some online courses to understand the basics of business management.

Step 2 – Structure

Getting your business structure correct from the beginning is essential. Find a commercial lawyer and an experienced accountant. They will assess your situation and advise on the best entity structure to use to operate your business. Your accountant will carefully examine the figures you’ve been given by the franchisor.

There are many different types and combinations of structures:

1. Sole Trader
2. Partnership
3. Company
4. Trust (discretionary, unit or hybrid)

The best structure for you will depend on who will be actively involved in the business and how you wish to protect your personal assets. Each structure has its own taxation consequences. What is right for one person is not necessarily right for another. Don’t assume that because a family member had a company that you need one too.

If you choose a trust and a company, your advisors will register your company and set up your trust. If you have business partners then having a partnership, shareholders or other governance agreement is good practice to outline the relationship of the stakeholders involved, including (without limitation) what happens if you wish to buy out a partner or sell your share or interest in the future.

Step 3 – Finance

Unless you have sufficient assets to fund your new venture, you will need to apply for finance. This will take several weeks. Be prepared for your financier to ask for a personal guarantee. This means that if your entity can’t meet a loan repayment, then the financier can have recourse against your personal assets.

Step 4 – ABN

Your accountant will need to apply for an ABN for your entity and register it for GST.

Step 5 – Read everything

Carefully read all the documents given by the franchisor. Make a list of questions to discuss with your lawyer and accountant. They may seem silly to you, but these questions are often a prompt for your advisor. Don’t assume your advisors understand the ins and outs of the franchise model – explain it to them.

Make sure the franchise documents cover everything you are expecting. A ‘gentleman’s agreement’ may sound good at the time, but trying to enforce this in the future can be problematic.

Step 6 – Don’t rush

Double check with your advisors before you sign anything. Make sure you’re comfortable with your enquiries and the franchise documents before you proceed. Buying a business is a huge commitment. Make sure you can see yourself in the business each day and that you’ll be happy doing that.

 If you need assistance setting up your Franchise, Talk to the Franchising team at Rouse Lawyers. Contact us today!

MAIN RESIDENCES IN ESTATE PLANNING – CAUTION REQUIRED

The use of testamentary trusts in estate planning (particularly for clients with a reasonable level of income producing investments) is relatively standard practice. It is not uncommon in preparing the Will to pass all of the assets of the testator into one or more testamentary trusts.

The tax advantages of testamentary trusts are obvious – distributions to minors are not restricted to a $416 limit as applies to discretionary trusts, as well as the income splitting advantages of discretionary testamentary trusts. Of greater importance are the asset protection advantages that a properly designed testamentary trust can provide.

What is often ignored, however, is the special position of main residences under the tax legislation. A complete exemption from any capital gains subject to a number of conditions – the key condition is the disposing owner is an individual that has used the property as their main residence.

CGT on deceased estates

Example Bruce and Fleur purchased their home in 1992 for a cost of $170,000. The property is held as tenants in common. Throughout the period of ownership they have used it exclusively as their main residence. It now has a value of $1,020,000, and after reduction by costs associated with sale, a capital gain of $800,000 is expected. They are now 73 years of age and executed their Will which passes their interest in the home, together with other income producing assets, into a Testamentary Trust initially controlled by the survivor. Shortly afterwards, Bruce passes away.

The general rule is that post-CGT assets (assets acquired on or after 20 September 1985) passing into a deceased estate are deemed to have been acquired at the cost base of the testator. The Main Residence Exemption is extended if the property is sold within two years of death.

But what of the situation where the property passes to a testamentary trust? A trustee is generally not eligible for the Main Residence Exemption.

Special Cost Base Rules

Division 128 alters the standard cost base rules above in nominated circumstances.

One special cost base rule applies where the property was the main residence of the deceased immediately before they died and was not then being used to produce assessable income. In that instance, instead of adopting the deceased cost base, the cost base is equal to its market value. On the other hand, the dwelling were used to produce assessable income at the date of death (for example, by the rental of a room) the cost base would be $85,000 (½ of $170,000), which could give rise to a capital gain of $315,000 if sold immediately after death. A death tax?

Exemption for deceased estates

The rules in respect of the Main Residence Exemption provide a full exemption for post-CGT dwellings if it was a deceased’s main residence just before death and not being used to produce assessable income at that time (use prior to death is not taken into account). It applies to pre-CGT dwellings irrespective of use prior to death.

The full exemption is available where the dwelling is sold within two years of death, or the dwelling is used throughout the period after death by the deceased’s spouse, a person with a right of occupation under the Will, or the beneficiary to whom the dwelling passes under the Will.

Importantly, the exemption not only applies to an individual but also to the trustee of a deceased estate. Although it might be considered that the term “trustee of a deceased estate” is limited to the legal personal representative, the ATO accepts that the trustee of a testamentary trust satisfies that description (ATO ID 2006/34) which is consistent with its long-standing practice in PSLA 2003/12 to treat the trustee of a testamentary trust in the same way as a legal personal representative for CGT.

A key planning point is if the dwelling is being used as the Main residence of a person other than the spouse, a right of occupation must be provided by the Will.

Failing the conditions: if the property is not sold within two years and not used as a main residence by the people described above, a partial exemption is available. But in that instance any period when the dwelling was not the deceased’s main residence is taken into account to reduce the exemption.

Replacement Residences

In the event that the property were sold and a replacement residence acquired, the above exemption would not apply to the replacement residence.

On the other hand, if the original dwelling had passed to an individual who sold it and acquired a replacement residence, the replacement residence would be eligible.

A less-known provision, (Section 118-210) extends the Main Residence Exemption to the trustee of a deceased estate that acquires a dwelling for occupation by an individual. With appropriate drafting of the Will and putting in place appropriate processes to demonstrate the dwelling is acquired for occupation by an individual, this provision extends the Main Residence Exemption to a replacement residence.

As outlined above, the ATO accepts that the trustee of a testamentary trust is a trustee of a deceased estate to qualify for this exemption.

Pass to Spouse

Some may be dubious about the ATO continuing to stand by its long-standing practice and for greater certainty the best option is simply to pass the interest in the residence to the survivor. What must not be overlooked is that such a gift would then be subject to any claims that might be made against the surviving spouse (loss of asset protection benefits). Additional processes must be implemented in that case to preserve the asset protection benefits of a suitably drafted testamentary trust.

Key Message

When implementing estate planning the Main residence of the deceased’s should receive special attention to enable access to the Main Residence Exemption on a subsequent sale during the lifetime of the survivor, and the asset protection benefits of a properly designed testamentary trust.

In particular, drafting a suitable form of right of occupation within the terms of the Will is recommended.

If passing the residence to a spouse, additional processes are required.

NOTE: This article is for general information only and should not be relied upon without first seeking advice from one of our specialist solicitors.

If it’s too good to be true… it could cost you.

Image via today.com

Consumer Affairs Victoria v Gibson

The Federal Court has handed down its decision on penalties against Belle Gibson.

Ms Gibson rose to fame (and infamy) surrounding promotions of her book and mobile app titled The Whole Pantry, wherein she claimed to have beaten cancer through diet and alternative therapies after rejecting conventional cancer treatment.

The App and Book, published in August 2013 and November 2014 respectively, netted Gibson and her related company estimated sales of over $1 million, along with breakfast TV slots, current affairs coverage, magazine articles, social media stardom and charity fundraisers.

However, the claims turned out to be too good to be true.

After cracks began to appear in Gibson’s cancer story, and allegations surfaced that little, if anything, from the charity promotions, had actually been donated, Consumer Affairs Victoria (CAV) commenced proceedings against Ms Gibson and her company for misleading and deceptive conduct.

In March 2017, Gibson and her related company (now in liquidation) were found to have engaged in misleading and deceptive conduct in breach the Australian Consumer Law and its counterpart Victorian legislation.

It was held that Gibson and her company had made false or misleading representations in relation to claims about Gibson having cancer and the treatments she underwent, along with multiple false or misleading representations that certain sales proceeds would be donated to various charities.

The Court found that, despite the company operating the social media accounts and holding the book publishing contracts with Penguin, Ms Gibson was also liable as the ‘controlling mind’ behind the operation.

In the follow-up judgment, Mortimer J ordered Gibson to pay penalties totalling $410,000 associated with the Australian Consumer Law breaches for false charitable donation claims, plus CAV’s legal costs.

The Court declined to make an adverse publicity order (requiring publication of a corrective notice). However, in a stinging endnote to the judgement, the Court observed that CAV could have sought additional non-monetary orders, including community service orders:

[115] The Court could have been asked to direct Ms Gibson, for example, to perform a service at one or more of the charitable organisations to which she had promised she and her company would give money. The Court could have been asked to direct her to perform a service at one or more institutions caring for people who really do have cancer … And, in a case such as this, it is more likely to have brought home to Ms Gibson the impact of her conduct, and its offensiveness to members of the Australian community who really are struggling with cancer and its effects, whether on themselves, their families or their friends. Most Australians are, in one way or another, touched by cancer as a terrible illness.

Ms Gibson did not appear at the trial hearings, and it remains to be seen whether the penalties imposed by the Court will be paid. Penguin Australia earlier agreed to donate $30,000 to Victoria Consumer Law Fund for its role in publishing the book.

Takeaways

• False, or misleading and deceptive claims in breach of the law can result in substantial penalties.
• The Court is not limited to financial penalties, and has a range of other measures it can impose, such as adverse publication orders, and community service orders.
• Company directors can be personally liable for misleading and deceptive conduct where it is shown that they are the “controlling mind” behind the conduct.

Links

Consumer Affairs Victoria press release
https://www.consumer.vic.gov.au/latest-news/annabelle-gibson-and-inkerman-road-nominees-pty-ltd-court-action

Director of Consumer Affairs Victoria v Gibson [2017] FCA 240 (Liability Judgment)
http://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/cth/FCA/2017/240.html

Director of Consumer Affairs Victoria v Gibson (No 3) [2017] FCA 1148 (Penalties Judgment)
http://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/cth/FCA//2017/1148.html

If you have concern’s over your Intellectual Property call  Rouse Lawyers today to discuss how we can assist you.

Business Lawyer Brisbane with Rouse Lawyers

Selling A Business in Queensland – What your Brisbane Business Lawyer Does

When selling your business there are many legal factors to consider, and if you are considering selling your business you should seek advice and guidance from a business lawyer well in advance. A Brisbane based business lawyer will have intimate knowledge of how businesses are valued, and the skillset and expertise to prepare the necessary documentation. Doing these things will help ensure you receive the best possible outcome from the transaction. Skipping this step or trying to negotiate a business contract yourself, without the assistance of a business lawyer, may see your contract fall over, or see you having to deal with unexpected and unwanted problems.

Do I need a business lawyer?

There are many advantages a business lawyer can bring to the table that can assist with the sale of your business. An experienced business lawyer can protect your best interests by providing efficient, strategic advice throughout the entire process.
There are a few key steps involved in selling a business that requires professional advice.

Document preparation

A business lawyer acting on your behalf can provide advice regarding how to structure the sale of your business, and prepare the necessary documentation to ensure that the transaction gives effect to your best interests. It is critical that the terms and conditions of the sale of your Queensland business are set out clearly. A Brisbane business lawyer will be familiar with the overall processes involved in buying and selling local businesses, providing you with confidence that all of the paperwork will be prepared to ensure that the transaction proceeds smoothly.

Transfer duty & taxes

When selling a business in Queensland there are often transfer duty consequences, and knowing the ins and outs of what’s involved calls for an experienced business lawyer. Understanding exactly what your obligations are from the outset is critical, and your business lawyer will work with your accountant to ensure you are receiving the best possible outcome.

Legal obligations

There are a range of legal obligations which arise in every business transaction, and these must be considered and balanced by obtaining legal advice. Employing the services of a team who understand the implications associated with the sale of your business, particularly in Queensland, is essential.
Making the decision to partner with an experienced business lawyer will help ensure your transaction is on the road to success. Our experienced team takes the time to get to know businesses, and what is important to them. By doing this, we understand how to get the best possible result for our clients.

If you are considering selling your Queensland based business, contact one of our business lawyers and make an appointment to discuss your needs today.

ESTATE PLANNING MADE SIMPLE

If you like to avoid conflict, stress and unnecessary expense – then the importance of a proper estate planning review and suite of documents, cannot be under-estimated.

	8 Things to Think About When Considering if Your Estate Plan is Adequate
1	(a) Benefit from your wealth [home, investments, superannuation, trust interests, inheritances, businesses etc] (as opposed to an unworthy beneficiary, ex-spouse, the Australian Taxation Office or Trustee in Bankruptcy)?
2	If you are hospitalized tomorrow, on heavy medication needing a back operation, who will pay your rates, instruct your rental property managers, authorize payment of health insurance accounts to ensure your operation can go ahead or maintain business dealings/contracts?
3	Who among your siblings/parents, spouse or close family friend will decide where you will live, if your pet can stay with you, or other personal care options (religious outings, clothing, accommodation, make-up/hair/shaving) etc?
4	Are you concerned about the pressure your spouse/children will face from in-laws, step-relatives or business partners to liquidate assets that you intended to remain as a capital growth asset for long-term benefit of family?
5	Do you wish to choose your response to Advanced Health Care queries or leave this to chance?
6	Have you considered who will care for your minor children if you cannot – and how you can minimize disputes causing them greater distress at a time when they need it least?
7	Will your superannuation (and accompanying life insurance policy) be available to an ex-de facto’s child? (your step-child, despite separation)
8	Can your former spouse to whom you pay spousal maintenance gain access to a portion of your estate?

 

If you have not thought of, nor addressed, any of these questions, then the simple answer is that you do not have an adequate Estate Plan (and this is just a sample of the many issues a comprehensive adviser will discuss with you at a Lawyer qualified meeting).

How can you maximize your efforts, minimize potential for family conflict and be a generous benefactor, with ease and simplicity?

1. Commit an hour of your time with our Estate Planning Lawyer (to save hours of grief to your Family);
2. Invest in yourself and let us educate you on the Key Estate Planning Documents necessary to fulfill your goals;
3. Receive a clear Considered Plan and Fixed Fee Quote;
4. Benefit from our 360o approach, without the bloated overheads of a CBD Firm or Client Service Managers; and
5. Let our Approachable Team draft a suite of documents to answer your Estate Planning Goals, and allow you to focus on building your wealth and family relationships.

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

WHAT HAPPENS IF YOU DIE WITHOUT A WILL?

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

Franchisors beware: Employment laws toughen again!

On 5 September 2017, the Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017 passed through parliament. When enacted into law, this legislation will have massive ramifications on the franchising industry.

Under the existing laws, a franchisor may potentially be held to be liable for a franchisee’s breach of workplace laws if the franchisor is involved in the contravention.

Along with increasing maximum penalties for employers who deliberately breach minimum wage and entitlement obligations under the Fair Work Act 2009, the proposed new legislation will hold franchisors and holding companies responsible for underpayments by their franchisees or subsidiaries if the franchisor knew, or reasonably should have known, about the contravention and failed to take reasonable steps to prevent it. This greatly expands on the current laws.

The controversial Bill has been heavily debated within the Australian franchise industry, predominantly because in many franchise models the franchisee operates its business independently from the franchisor, who is removed from the day-to-day running of the business such as paying wages and rent, which is the responsibility of the franchisee. The legislation will only apply to franchisors who have a significant degree of influence or control over the affairs of their franchisees. How this influence or control will be assessed is yet to be determined.

Triggered in response to the highly publicised 7-Eleven employee underpayment scandal which has engulfed the franchise sector since 2015, along with several recent employee underpayments by Domino’s and Caltex franchisees, the franchise-specific provisions of the new laws will take effect 6 weeks after the Bill receives royal assent (or in other words, when the legislation becomes enforceable law).

Turning a blind eye is no longer an option for franchisors, who must now pay closer attention to how their franchisees manage employment processes. Franchisors should take this opportunity to:

1. review their standard form Franchise Agreements and Operations Manuals to clearly set out franchisee obligations under workplace laws;

2. consider whether to include employee obligations in initial or ongoing training programs provided to franchisees;

3. consider and revise any policies and resources provided to franchisees covering obligations under workplace laws;

4. monitor franchisees, and if warranted, carry out compliance audits to determine if employees are being paid under the correct award, and correct entitlements such as superannuation and leave. Regular audits may act as a deterrent to other franchisees who will be aware that audits are commonplace and that consequences for non-compliance with employment laws are enforced;

5. encourage feedback as both franchisees and their employees should feel comfortable approaching a franchisor in respect to issues with the system. Employees should not feel that they are prevented from raising employment concerns with the franchisor;

6. listen to concerns that franchisees raise regarding the system and don’t ignore issues. It is in the best interests of franchisors to ensure that franchisees are operating their businesses adequately. If franchisees are struggling to pay their employees the proper entitlements, and if this is a widespread concern, that could indicate the need to review the structure of the franchise system; and

7. treat franchisees with uniformity. Franchisors could be accused of breaching their good faith obligations under the Franchising Code of Conduct if they single out a particular franchisee. If audits are to be carried out and consequences for non-compliance enforced, then all franchisees must be treated equally.

Franchisees and franchisors will need to be prepared to face tougher penalties for breaching employment laws. In some cases the penalties for contravening employment laws will now be up to $630,000 for corporations and $126,000 for individuals per offence. The legislation also brings increased penalties for breaching record-keeping and payslip requirements. “Cash-back” arrangements where an employer delivers a wage to a worker but then asks for part of it to be repaid will also be specifically outlawed.

Depending on the provisions of the particular Franchise Agreement, underpayment of employees may constitute fraudulent conduct in certain circumstances, entitling a franchisor to immediately terminate a Franchise Agreement, or at the very least, acting as grounds for a breach notice to be issued.

If you have any concerns about the underpayment of employees or questions about the proposed new laws, Talk to the Franchising team at Rouse Lawyers. Contact us today!

 

MAIN RESIDENCES IN ESTATE PLANNING – CAUTION REQUIRED

The use of testamentary trusts in estate planning (particularly for clients with a reasonable level of income producing investments) is relatively standard practice. It is not uncommon in preparing the Will to pass all of the assets of the testator into one or more testamentary trusts.

The tax advantages of testamentary trusts are obvious – distributions to minors are not restricted to a $416 limit as applies to discretionary trusts, as well as the income splitting advantages of discretionary testamentary trusts. Of greater importance are the asset protection advantages that a properly designed testamentary trust can provide.

What is often ignored, however, is the special position of main residences under the tax legislation. A complete exemption from any capital gains subject to a number of conditions – the key condition is the disposing owner is an individual that has used the property as their main residence.

CGT on deceased estates

Example Bruce and Fleur purchased their home in 1992 for a cost of $170,000. The property is held as tenants in common. Throughout the period of ownership they have used it exclusively as their main residence. It now has a value of $1,020,000, and after reduction by costs associated with sale, a capital gain of $800,000 is expected. They are now 73 years of age and executed their Will which passes their interest in the home, together with other income producing assets, into a Testamentary Trust initially controlled by the survivor. Shortly afterwards, Bruce passes away.

The general rule is that post-CGT assets (assets acquired on or after 20 September 1985) passing into a deceased estate are deemed to have been acquired at the cost base of the testator. The Main Residence Exemption is extended if the property is sold within two years of death.

But what of the situation where the property passes to a testamentary trust? A trustee is generally not eligible for the Main Residence Exemption.

Special Cost Base Rules

Division 128 alters the standard cost base rules above in nominated circumstances.

One special cost base rule applies where the property was the main residence of the deceased immediately before they died and was not then being used to produce assessable income. In that instance, instead of adopting the deceased cost base, the cost base is equal to its market value. On the other hand, the dwelling were used to produce assessable income at the date of death (for example, by the rental of a room) the cost base would be $85,000 (½ of $170,000), which could give rise to a capital gain of $315,000 if sold immediately after death. A death tax?

Exemption for deceased estates

The rules in respect of the Main Residence Exemption provide a full exemption for post-CGT dwellings if it was a deceased’s main residence just before death and not being used to produce assessable income at that time (use prior to death is not taken into account). It applies to pre-CGT dwellings irrespective of use prior to death.

The full exemption is available where the dwelling is sold within two years of death, or the dwelling is used throughout the period after death by the deceased’s spouse, a person with a right of occupation under the Will, or the beneficiary to whom the dwelling passes under the Will.

Importantly, the exemption not only applies to an individual but also to the trustee of a deceased estate. Although it might be considered that the term “trustee of a deceased estate” is limited to the legal personal representative, the ATO accepts that the trustee of a testamentary trust satisfies that description (ATO ID 2006/34) which is consistent with its long-standing practice in PSLA 2003/12 to treat the trustee of a testamentary trust in the same way as a legal personal representative for CGT.

A key planning point is if the dwelling is being used as the Main residence of a person other than the spouse, a right of occupation must be provided by the Will.

Failing the conditions: if the property is not sold within two years and not used as a main residence by the people described above, a partial exemption is available. But in that instance any period when the dwelling was not the deceased’s main residence is taken into account to reduce the exemption.

Replacement Residences

In the event that the property were sold and a replacement residence acquired, the above exemption would not apply to the replacement residence.

On the other hand, if the original dwelling had passed to an individual who sold it and acquired a replacement residence, the replacement residence would be eligible.

A less-known provision, (Section 118-210) extends the Main Residence Exemption to the trustee of a deceased estate that acquires a dwelling for occupation by an individual. With appropriate drafting of the Will and putting in place appropriate processes to demonstrate the dwelling is acquired for occupation by an individual, this provision extends the Main Residence Exemption to a replacement residence.

As outlined above, the ATO accepts that the trustee of a testamentary trust is a trustee of a deceased estate to qualify for this exemption.

Pass to Spouse

Some may be dubious about the ATO continuing to stand by its long-standing practice and for greater certainty the best option is simply to pass the interest in the residence to the survivor. What must not be overlooked is that such a gift would then be subject to any claims that might be made against the surviving spouse (loss of asset protection benefits). Additional processes must be implemented in that case to preserve the asset protection benefits of a suitably drafted testamentary trust.

The Take-Away

When implementing estate planning the Main residence of the deceased’s should receive special attention to enable access to the Main Residence Exemption on a subsequent sale during the lifetime of the survivor, and the asset protection benefits of a properly designed testamentary trust.

In particular, drafting a suitable form of right of occupation within the terms of the Will is recommended.

If passing the residence to a spouse, additional processes are required.

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 advice ? Talk to the Tax & Superannuation Team at Rouse Lawyers. Contact us today!

If you’re gonna say it, you better mean it!

Image via news.com.au 

Janine Allis, founder of Boost Juice and Retail Zoo, delivered a punch to two gym owners and Shark Tank hopefuls this week. The guys were pitching a food product to the Sharks, and the packaging revealed it was ‘engineered to accelerate muscle growth and increase energy levels’.

When asked whether they had completed any clinical trials, or had any proof that their food product actually did what the packaging said, the answer was no.

‘Misleading!’ was Allis’ response.

‘At the moment, you’re making health claims that aren’t proven which means it’s against the law. I would seriously think about repackaging because there’s a number of thing son here that are simply against the food standards codes. You need to get good legal advice…’

The Australian Consumer Law (the ACL) is pretty clear on what product packaging can’t do: packaging with statements that are incorrect, or likely to create a false impression, are not allowed.

The proof is in the prosecutions:

-       Nurofen maker, Reckitt Benckiser, was fined $1.7M for breaching the ACL with its ‘specific pain range’, where all products contained the same active ingredient, and did the same thing.

-       Arnott’s was fined by the ACCC for claims on its ‘Light & Crispy’ packaging for adopting a false comparator to inflate a health claim.

-       When Heinz’s US parent company acquired Australian product Golden Circle, Golden Circle packaging continued to represent that Golden Circle products were Australian owned. Heinz gave undertakings to the ACCC, and also donated more than 800,000 affected cans of fruit and vegetables to Australian welfare agencies.

-       Goodman Fielder, maker of non-dairy spread Logicol, engaged in misleading or deceptive conduct claiming on its pack ‘#1 RECCOMENDED for dietary change’. In this instance, it was competitor Unilever Australia (manufacturer of competitor brand Flora Pro-Activ) that sued Goodman Fielder for the breach.

Takeaway

It’s a bitter pill to swallow when you’ve spent considerable time, money and effort designing eye catching, memorable packaging for a product and marketed that product to stockists and consumers, only to find out it breaches consumer laws and must be changed.

Claims about products must be true, accurate and capable of being substantiated, or you run the risk of an ACCC prosecution, or a rival competitor seeking to leverage your mistake to their advantage.

Unsure? Get legal advice – investing in peace of mind may save huge expense down the track.

Contact the team at Rouse Lawyers today.

Law Society Warns Against Will Kits

The Queensland Law Society has issued a warning against do-it-yourself will kits:

“A large percentage of Australians believe that filling out a will kit from their local news agency or downloaded from the internet, will cover them when they pass away. Decades ago that might have been true. But in a modern complex technological world, it is not.

Gone are the days where people simply had a house, a car and a few dollars in the bank. Once upon a time a will might have dealt with those assets. That is no longer the case.

Anyone who relies on a downloaded will to give effect to the distribution of your assets on your death, is taking dangerous risks for yourself, your family and loved ones.

Why?

These days we have far more complex ways of saving for our future. Unlike 40 years ago, we all now have Superannuation. Our banks are no longer that large sandstone building in the middle of town. Banks accounts are online. A growing number of us have insurance as a safety net for our families. Many of us have shares – Australian and international. The list goes on.

Many mistakenly believe that all their assets are covered under a simple will that, once signed, means their wishes will be carried out following their death.

In reality, many of these modern day assets are not covered by a will, and those that are, remain exposed to claims. They can be exposed because the laws change according to where you live and where your asset is kept.

On top of that, we are living longer and that is resulting in more and more people losing capacity. Many people overlook the impact a Power of Attorney can have on assets in a will.

Also unlike 40 years ago, many people are now living in retirement villages or nursing homes. Retirements plans and nursing home care impacts on your estate.

These are just a few of the matters that are not covered by filling out that will kit. Seeking legal advice from your trusted, local solicitor is key to ensuring your wishes are carried out when you lose capacity and pass away.

Solicitors are independent legal advisors with no stake in who gets what from you. They are properly qualified, licensed and fully insured.  Most importantly they are duty bound to act in the best interests of you – their client. Significantly, lawyers are charged with protecting your confidentiality even after you die – no other advisor has this duty.

With Seniors’ Week running from 19-26 August, I strongly urge all adult Queenslanders to ensure you have your wishes recorded with the advice of a qualified solicitor to protect the future of your care, the future of your assets, and to give you peace of mind.

Importantly, take the time to check in with your elderly neighbours and family members to make sure they are okay and have the conversation about getting their affairs in order to ensure their wishes are protected for the future.”

For a no-obligation, confidential discussion with our experienced team regarding all estate planning matters, contact Rouse Lawyers on 07 3648 9900.

This article was originally published by the Queensland Law Society.

Franchise OR LICENCE?

If it looks like a duck, walks like a duck and quacks like a duck, it probably is a duck. The same reasoning can be applied to whether a licence agreement constitutes a franchise agreement – it is a matter of substance over form.

Both licence agreements and franchise agreements can grant people the right to use intellectual property, including trademarks, brands and a business system.
There are differences between the two types of agreement, so if you are thinking of buying into a franchise you need to make sure of your ground. Under the Australian Franchising Code of Conduct, four elements must be met for an agreement to constitute a franchise agreement… 1. there is an agreement, either written, oral or implied 2. one person grants to another person the right to conduct a business offering, supplying or distributing goods or services under a system or marketing plan substantially determined, controlled or suggested by the franchisor 3. the business will be substantially or materially associated with a trademark, advertising or a commercial symbol owned, used or licensed by the franchisor or specified by the franchisor 4. before starting (or continuing) the business, the franchisee must pay or agree to pay the franchisor a fee. The fee can include an initial capital investment, payment for goods or services, or a royalty fee. It excludes payments for goods or services supplied on a genuine wholesale basis or repayment of a loan.

1. there is an agreement, either written, oral or implied 2. one person grants to another person the right to conduct a business offering, supplying or distributing goods or services under a system or marketing plan substantially determined, controlled or suggested by the franchisor 3. the business will be substantially or materially associated with a trademark, advertising or a commercial symbol owned, used or licensed by the franchisor or specified by the franchisor 4. before starting (or continuing) the business, the franchisee must pay or agree to pay the franchisor a fee. The fee can include an initial capital investment, payment for goods or services, or a royalty fee. It excludes payments for goods or services supplied on a genuine wholesale basis or repayment of a loan.

2. one person grants to another person the right to conduct a business offering, supplying or distributing goods or services under a system or marketing plan substantially determined, controlled or suggested by the franchisor 3. the business will be substantially or materially associated with a trademark, advertising or a commercial symbol owned, used or licensed by the franchisor or specified by the franchisor 4. before starting (or continuing) the business, the franchisee must pay or agree to pay the franchisor a fee. The fee can include an initial capital investment, payment for goods or services, or a royalty fee. It excludes payments for goods or services supplied on a genuine wholesale basis or repayment of a loan.

3. the business will be substantially or materially associated with a trademark, advertising or a commercial symbol owned, used or licensed by the franchisor or specified by the franchisor 4. before starting (or continuing) the business, the franchisee must pay or agree to pay the franchisor a fee. The fee can include an initial capital investment, payment for goods or services, or a royalty fee. It excludes payments for goods or services supplied on a genuine wholesale basis or repayment of a loan.

4. before starting (or continuing) the business, the franchisee must pay or agree to pay the franchisor a fee. The fee can include an initial capital investment, payment for goods or services, or a royalty fee. It excludes payments for goods or services supplied on a genuine wholesale basis or repayment of a loan.

All four elements are cumulative – in other words, all elements and all parts of each element must be present before the agreement can be classified as a franchise agreement. It does not matter what the agreement is called. If it meets all four criteria, it will constitute a franchise agreement for the purposes of the code. The main factor distinguishing a licence agreement from a franchise agreement is the degree of control and strict compliance with a business system inherent to franchise agreements. Licence agreements are commonly more relaxed in this regard.

CASE STUDY
The leading case relative to this area was the 2012 Federal Court decision in Rafferty v Madgwicks. In finding that a “rights agreement” was in fact a franchise agreement, the court set out relevant factors that could potentially indicate the existence of a franchise agreement. These included: 1. specific requirements for accounting and record-keeping, signage and merchandising, sales structures and reporting turnover 2. the franchisor’s right to audit account records and to approve marketing material 3. restrictions on the

These included: 1. specific requirements for accounting and record-keeping, signage and merchandising, sales structures and reporting turnover 2. the franchisor’s right to audit account records and to approve marketing material 3. restrictions on the

1. specific requirements for accounting and record-keeping, signage and merchandising, sales structures and reporting turnover 2. the franchisor’s right to audit account records and to approve marketing material 3. restrictions on the

2. the franchisor’s right to audit account records and to approve marketing material 3. restrictions on the

3. restrictions on the franchisee’s sale of competing products or services, use of the brand name and trademarks, and specific marketing or sales territories. For the document to constitute a franchise agreement, the system or marketing plan under the agreement must be substantially determined, controlled or suggested by the franchisor. The degree of control must be carefully considered, along with the extent to which the franchisee’s business involves the sale of the franchisor’s goods or services.

The details of such a system or marketing plan do not need to be set out in the agreement. It will be enough for the business to be proved a franchise if the agreement allows the franchisor to exercise this control.

Just because an agreement is not called or intended to be a franchise agreement, it may nevertheless be caught within the ambit of the code, which is intended to protect franchisees involved in transactions where there is inequality of bargaining power. Therefore it is important to look at the substance of an agreement to determine whether it will be governed by the code. Heavy obligations are placed on both parties under the code, as well as consequences for non-compliance. This makes it essential to always obtain legal advice before entering into commercial agreements to ensure full compliance with the relevant laws.

Need advice about your Franchise Agreement?  Talk to the Franchising team at Rouse Lawyers. Contact us today!

Article was previously published in the July/August edition of Franchise Business Magazine.