Effect of Trust Vesting Date: ATO Confirms Our Long-Held View!

Most trusts, and all private discretionary trusts, have what is known as a vesting date which is described differently in different trust deeds e.g. Vesting Date, Perpetuity Date, Termination Date, Vesting Day. The question often asked is what happens when that day is reached? This issue is considered by the ATO in Taxation Ruling TR 2018/6 Income tax: trust vesting – consequences of a trust vesting.

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The Issue

Many practitioners believe that on reaching that day the trust comes to an end and essentially requires a winding up process: realise such of the assets as are necessary to pay out liabilities, pay liabilities, and transfer the surplus assets are those that are entitled. In private discretionary trusts, the trustee will have a discretion to nominate which of the beneficiaries are entitled to surplus.

Clearly this is an issue for many practitioners, resulting in the ATO issuing a public ruling.

The concern is that the sale of assets and transfer of surplus assets to beneficiaries will trigger liabilities for capital gains tax and stamp duty, based on the market value of the assets at the time of the transfer. Bearing in mind the perpetuity period is often 80 years, these liabilities can be significant.

This belief arises because it is generally understood that the life of a trust is limited by a perpetuity period (often set as a period of 80 years prescribed by statute), and at the end of that period the trust must come to an end.

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Legal Concept

The concept of a perpetuity period is founded in what is described as the ‘rule against perpetuities’. That rule is described in Jacobs’ Law of Trusts in Australia 8th edition in the following way:

In its modern formulation, as stated in Cadell v Palmer, it provided that an interest in property if not vested at the time of its creation, must vest [within the perpetuity period]; if there was merely a possibility that this might not occur, the disposition was void. It will be observed that the rule is not strictly a rule against perpetuities, but against remoteness of vesting.

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Solution

The writer has always taken the view that the rule requires that the interests in the trust become fixed, with proper processes the trust does not come to an end, and a trust may exist in perpetuity provided it vests (with fixed interests in nominated beneficiaries) within the perpetuity period. The result is that with proper processes capital gains tax and stamp duty liabilities can be avoided on the vesting date.

Capital Gains Tax – relevant CGT events for consideration are CGT events A1, E1, E5 and E7. By adopting the proper process, there is no transfer of assets, beneficiaries do not become absolutely entitled to the assets, and the other CGT events will not apply.

Transfer (Stamp) Duty – this applies if there is a transfer of dutiable property or a change of trust interests. By adopting the proper process there will be no transfer or such a change.

In Taxation Ruling TR 2018/6, the ATO considers the income tax consequences of reaching the vesting date. Consistent with our view above, the ATO states in paragraph 13:

The vesting of beneficial interests in a trust, even if described as a ‘Termination Date’, does not  ordinarily cause the trust to come to an end, nor cause a new trust to arise. Vesting does not mean trust property must be transferred to the takers on vesting on the vesting date, or that the trust must be wound up either immediately or within a reasonable period (although the deed may require these events to occur after vesting).

Upon the vesting of a discretionary trust, the interests of entitled beneficiaries become fixed, and the trust converts from a discretionary trust to a fixed trust. Various restructures of either the trust assets or the vested interests may be considered which do not trigger liabilities for capital gains tax and/or stamp duty.

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Takeaway

When considering these issues it is prudent to use advisers that are fully aware of the legal ramifications, and do not need to wait for ATO guidance.

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

Contact one of our specialist solicitors to address your trust vesting issues.

By Domenic Festa (Accredited Tax Specialist and Chartered Tax Adviser)

The post Effect of Trust Vesting Date: ATO Confirms Our Long-Held View! appeared first on Rouse Lawyers.

PPSR Renewals – The Clock is Ticking!

Take note that from 30 January 2019 security interests registered for 7 years will begin to expire.

After its commencement in January 2012 many businesses registered security interests on the Personal Property Securities Register (PPSR) with a 7 year renewal option. Nearly 7 years has passed since registrations on the PPSR commenced and they are about to start expiring.

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Don’t Delay!

Once a registered security interest expires it can no longer be renewed.  Therefore, it is imperative that renewals are commenced in a timely manner and sooner rather than later.  You can, and should, extend your PPSR registration ahead of time.

If your security interest lapses and you register the interest again you run the risk of losing the protection that you may have enjoyed had the security interest been renewed, for example:

• Subject to exceptions, due to the first-in-time approach of the priority rules for enforcing security interests, if your business allows its PPSR registrations to expire so that a new security interest needs to be registered on the PPSR then, unless an exception applies, your business will go to the back of the security interest enforcement line.   This means that you may miss out on money owed to your business in the event you need to rely on the security interest.
• If the business granting your business the security interest becomes insolvent within 6 months of the security interest being re-registered after it has lapsed your security interest may not be effective. Again, you may miss out on money owed to your business.

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Where to Begin?

Identify what security interests you have registered on the PPSR and when they expire.  Diaries the expiry date and set a reminder well in advance of expiry to renew the registration.  Check all the information is correct and seek assistance if in doubt.

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Takeaways

The first 7 year PPSR registrations are coming up for renewal from 30 January 2019.

Renew your PPSR registrations well in advance of expiry prevent the security interest lapsing and losing protection for your business.

Take steps not to miss your renewal deadlines by identifying expiry dates and setting renewal reminders well ahead of the renewal deadline.

It is likely to be a busy time for renewals so don’t delay!

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By Sonja van der Steen

The post PPSR Renewals – The Clock is Ticking! appeared first on Rouse Lawyers.

Why Businesses Can’t Be Too Casual About Their Casual Employees

There has been quite a bit happening with regards to casual employees of late that businesses should take stock and review all casual employment arrangements they currently have in place.

Whilst casual employees are not entitled to annual leave under the National Employment Standards (NES) in the Fair Work Act 2009 (Cth) (FW Act), the recent Full Federal Court decision of WorkPac Pty Ltd v Skene [2018] FCAFC 131 (the Skene decision) has looked closely at when an employee is really a casual for the purposes of the NES and therefore entitled to annual leave. We recommend that all businesses now take stock and do the same, considering whether their casual employees really are casual employees.

In the Skene decision, the employee, fly in fly out worker, was placed on a roster which was set 12 months in advance. He worked regular, fixed shifts and was paid a flat hourly rate, with no separately identifiable casual loading. When he was terminated, the employee argued that he was a permanent, not a casual, employee, and therefore entitled to be paid out annual leave on the termination of his employment.

The Court closely reviewed the true nature of the employment relationship in the Skene decision. They found that the employee had no choices with regards to the days and hours he could work and that his roster was set 12 months in advance, meaning his working arrangements were clear and predictable and he worked regular and certain shifts.

The Court agreed that the employee, despite being paid by the hour, was not engaged as such, and was not a casual employee for the purposes of annual leave entitlements under the NES and therefore he was entitled to such annual leave on the termination of his employment.

Employees may therefore not necessarily be regarded as casual employees for all purposes, and there is now a real risk that, depending on the true nature of the engagement, that a casual employee, despite being paid a casual loading, could be found to be an employee for the purposes of entitlements like annual leave under the NES, imposing additional costs and liabilities on businesses.

The impact of the Skene decision could be that businesses may need to be paying their casual employees entitlements like annual leave, including on termination, particularly if your business has long term casual employees, who are engaged on a regular and systemic basis, for a sequence of periods, during a period of at least 12 months. This will not necessarily always be the case, and the Court was certainly alive to the issues of ‘double dipping’, in that an employee could be paid a casual loading as well as annual leave and therefore were ‘double dipping’, and the concept of an employer being able to offset the casual loading against any annual leave entitlement was noted. It will therefore be important for businesses to properly review their use of casual engagements and the best arrangements for casuals going forward, as well as to ensure the terms of the employment contracts used to engage casual employees are sufficient and robust enough, including any casual loading being properly set out in employment contracts and identifiable on payslips.

There have also been changes in regards to the casual conversion provisions in Modern Awards on and from 1 October 2018, whereby a new standard casual conversion clause has been included in most Modern Awards.

The casual conversion clause allows casual employees across most industries now the right to request conversion of their employment to permanent full-time or part-time employment, subject to having worked certain, regular hours over a 6 or 12 month period, depending on the relevant Modern Award that applies.

As a consequence of a casual conversion, an employee will obviously be entitled to receive the entitlements that flow on from being a permanent employee. Any applications for casual conversion your business receives should be carefully considered, as they may impact on your staffing level requirements and costs associated with employment, and should be carefully managed to ensure compliance with the obligations under the relevant Modern Award, particularly if they are to be refused, as they can only be refused on certain, reasonable grounds.

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If you want to put your business in the best position to manage the ongoing risks and implications with regards to casual employees, contact the Employment Law Team at Rouse Lawyers today. Rouse Lawyers is experienced in providing valuable legal advice from the commencement of the employment relationship and assisting your business to navigate the employment laws throughout your employment relationships and to effectively identify and manage the issues and risks in the employment space for your business.

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By Justine Ansell 

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