Issue 36 - January 2007

• Special disability trusts
• Changes to Capital Gains Tax roll-over relief in marriage breakdown
• Company directors and ATO payment arrangements
• Employers' ability to terminate employees

Making provision for severely disabled family members Special disability trusts

Recent amendments to the Social Security Act 1991(SSA) and Veterans Entitlement Act 1986 (VEA) were introduced so that families may now provide for severely disabled family members by establishing a special disability trust. Additionally, the severely disabled person’s pension will not be affected by trust income or trust assets up to the value of $500,000 under new means-test concessions.

Special disability trusts can be established for any person over 16 years who suffers from a severe disability or any child under 16 years who is profoundly disabled. The sole purpose of these trusts is to provide for the reasonable care and accommodations needs of the disabled person.

Income derived by the principal beneficiary from the trust, or money from the trust that is used to pay for accommodation or care expenses of the beneficiary will not be counted in the application of the income test under SSA and VEA, so as to preserve the beneficiary’s pension entitlements.

Additionally, the trust may have assets up to $500,000 plus the home in which the beneficiary lives before the assets tests under the SSA and VEA are applied. Only assets in excess of the $500,000 threshold will be included in the beneficiary’s assessable assets.

These trusts can be established by Deed, or through attachment or incorporation into a Will.

For further enquiries about special disability trusts or wills and estates, please telephone Greg Dickson or email greg@wmdlaw.com.au or Craig Pryor or email craig@wmdlaw.com.au.

How will the new law impact on your assets? Changes to Capital Gains Tax roll-over relief in marriage breakdown

The Tax Laws Amendment (2006 Measures No 4) Act 2006 contains important changes to the marriage breakdown roll-over in relation to capital gains tax, which may impact significantly on family law clients in the following areas:

Main Residence Exemption
Under the previous law, only the transferee spouse’s use of the property was considered when determining the main residence exemption from capital gains tax. For instance, if the matrimonial home was transferred to the Wife to reside in as part of the property settlement, the home would not be subject to any capital gains tax on sale.

However, under the new Act, the use of the property by both the transferor and transferee spouse’s is now considered when determining the transferee spouse’s eligibility for the main residence exemption. Therefore, if the Husband in the above example moves out of the matrimonial home prior to settlement and elects his new residence to be his “main residence”, the Wife may be subject to some capital gains tax upon sale of the property.

Financial Agreements and Arbitral Awards
The Act also make assets transferred pursuant to a financial agreement made under Part VIIIA of the Family Law Act 1975 now eligible for capital gains tax roll-over relief in a way that is equivalent to the relief already in existence for assets transferred pursuant to court orders. This relief also applies to assets transferred under arbitral awards or written agreements that are binding under a State, Territory or foreign law relating to de facto marriage breakdowns.

If you want further information concerning the Tax Laws Amendment (2006 Measures No 4) Act 2006 and its effects on your assets or have any other family law or de facto law issues, please telephone Greg Dickson or email greg@wmdlaw.com.au.

Exercise caution when making payment arrangements with the Australian Taxation Office Company directors and ATO payment arrangements

For a debtor company that faces insolvency, an option that poses significant appeal is one where the company enters into an arrangement with the Australian Taxation Office (ATO) in relation to the payment of outstanding taxation liabilities by way of instalments. Such arrangements may in some cases enable a company to stay afloat and therefore present some promise in preventing liquidation. However, there are risks attached that directors need to be aware of and the consequences of not addressing these risks can be dire.

Payment arrangements are made when the debtor company firstly calculates the debt that it owes including interest. A specified program is then tailored to suit the company’s specific circumstances and a number of conditions is then imposed on the arrangement by the ATO.

If the company enters into such an agreement and is able to successfully meet the conditions imposed, then it may well be that this will help provide a saving grace for keeping the company afloat. However, if the company is unable to meet these conditions and is wound up either during the period of the arrangement or shortly after, then when it comes to investigating the affairs of the company, the mere fact that payment arrangements were in place may be used as evidence to assert that the company may have been trading whilst insolvent.

Further, if proceedings are commenced under this basis, the director of the company may be held personally liable to indemnify the Deputy Commissioner of Taxation under s588FG(2) of the Corporations Act 2001. Accordingly, it is important that directors approach ATO payment arrangements cautiously. Expert advise should always be consulted before such arrangements are entered into and directors should be confident that the problems causing insolvency have adequately been addressed to ensure that future profit generation is achievable. The appointment of a Voluntary Administrator is also an option that may be considered to continue business operations through a Deed of Company Arrangement (DOCA).

If you want further information regarding director liabilities and insolvency issues, please telephone Craig Pryor or email craig@wmdlaw.com.au.

Need to be able to prove genuine reason for termination Employers' ability to terminate employees

A major concern surrounding the introduction of the Federal government industrial relations reform package was the impact that the new laws would have on employees after the termination of an employee’s services. Cases are now being determined by the Australian Industrial Relations Commission (AIRC) and it appears that the AIRC is seeking to protect the rights of employees, where it can.

For example, in the recent case of John Nicholson (the employee) v Riviera Marine (the employer), the employee was terminated as a result of the downturn in business of the employer. If correct, this would have barred the employee from the unfair dismissal provisions.

The employee did not dispute that the employer had experienced a downturn in business. However, it was argued that the employer did not take steps to demonstrate that the employer had investigated the potential for redeployment of the employee. Shortly after terminating the services of the employee, the employer advertised jobs relating to a separate division of the employees business. The AIRC determined that this action cast doubt over the “genuineness” of the need to terminate the employee. The employee was therefore entitled to claim for unfair dismissal.

As such, it is important that employers seriously consider the termination of an employee prior to termination. If an employer does have concerns about the termination of an employee, they should seek legal advice.

If you have any employment related questions, please telephone Kevin Dwyer or email kevin@wmdlaw.com.au or Joel Hiscox or email joel@wmdlaw.com.au.

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