Estate planning superannuation and taxation BEN SYMONS BARRISTER

Estate planning, superannuation and taxation BEN SYMONS BARRISTER – STATE CHAMBERS

Overview of Estate Planning Purpose: (1) Protect assets – in the event of bankruptcy, marital breakdown, or negligence; professional (2) Minimise tax; and (3) Cost effective transfer of wealth to family / dependents on death. Why relevant? Most people will typically have at least 3 major assets that require protection and planning: (i) A property; (ii) Superannuation; and (iii) Assets held in a family trust.

Plan early, review plan regularly Plan ahead – before a situation arises where you need asset protection Review asset protection plan regularly: (i) assets change; (ii) beneficiaries may change, their circumstances may change; (iii) Both impact on the most tax effective way to distribute assets. Ensure assets can be passed to down to future generations in accordance with your wishes

Why do you need asset protection – The risks? Marital breakdown / planning for multiple marriages; Bankruptcy – failed business ventures, professional negligence liability; Breach of directors duties - penalties; and Death – ensuring assets are passed to desired beneficiaries tax effectively.

Bankruptcy – S 116 Bankruptcy Act (Cth) “Divisible property” at risk – essentially property held by bankrupt: (i) at time of bankruptcy; (ii) acquired before discharge of bankruptcy. “Excluded property”: (i) Certain superannuation payments; (ii) Certain life insurance payments; (iii) Compensation payments for personal injury (iv) Household items and mode of transport to the value of around $10, 000

Bankruptcy - clawbacks Undervalue transactions and gifts: (i) General rule – transactions up to 5 years before commencement of bankruptcy can be voided / clawed back; BUT, if transferee can demonstrate solvency of transferor, then transactions to; (i) Unrelated transferee – clawed back 2 years prior to commencement of bankruptcy; (ii) Related transferee – clawed back 4 years prior to commencement of bankruptcy;

Bankruptcy – clawbacks – general rule General rule – transactions entered in to where the “main purpose” was to defeat creditors: (i) Subjective test - inferred from circumstances of transaction; Superannuation contributions - where main purpose of making contributions was to defeat creditors.

Asset protection / planning vehicles Private company Discretionary “family trust” Self Management Superannuation Fund (trust) Testamentary Trust Superannuation Proceeds Trust

Private companies Advantages Limited liability; Good control if major shareholder; 30% flat tax rate on profits; Refund of excess franking credits; Easier to utilise losses. Disadvantages Directors exposed for insolvent trading insolvent or breach of director duties; No automatic access to 50% capital gains discount; 20% holding requirement for small business capital gains concessions; No ability to stream tax attributes – capital gains / franking credits

Discretionary family trusts Advantages Good asset protection – particularly with a corporate trustee: (i) Assets not held in personal name; (ii) Mere possibility/expectancy in relation to distributions. Disadvantages Risk of resettlement – changes to beneficiaries and trust property Losses trapped in trust – cannot be distributed; Flexible distributions to beneficiaries to maximise tax efficiency Land tax – no primary residence exemption; Access to 50% 12 -month CGT discount Ability to stream capital gains and franked dividends In NSW, the Succession Act claws back transactions with a trust that the deceased controls.

Family trust election Generally it is wise to make a family trust election Relatively generous rules apply for utilising losses; Beneficiaries generally don’t have the ability to access franking credits unless a family trust election is made

Family Trust Election Advantages Disadvantages General beneficial to make election if making distributions to a “family” group; Punitive tax at 47% (plus Medicare levy) on distributions made to beneficiaries outside “family” group More generous loss and bad debt utilisation rules (simplified COT, most trust loss rules do not apply) Class of beneficiaries restricted - “Family group” determined by reference to a “specified individual” – election of a “specified individual” can only be changed once “Family group”: Generally the best way to maximise franked dividends for beneficiaries (i) parent, grandparent, brother or sister of the test individual; (ii) nephew, niece, child and their lineal descendants; (iii) The spouses of any of the above.

Streaming of capital gains/ franking credits From 2011 year onwards capital gains and franked dividends can be streamed to specified beneficiaries However, trust deed must specifically empower trustee to do distinguish between franked and unfranked dividend distributions If not, may need to consider amending trust deed Cannot make a resolution where expenses exceed amount of dividend Trustee must specifically record distributions of franked dividends / gains in its account Anti-avoidance rules apply to tax-exempt beneficiaries

Amendment of trust deed – will it trigger a resettlement / capital gain? Amending a trust deed may trigger a resettlement May trigger capital gains and stamp duty liability Must be able to demonstrate continuum of: (i) Constitution / regime of trust obligations affecting property (ii) Trust property; (iii) Members / objects of trust (Federal Commissioner of Taxation v Clarke (2011) 190 FCR 206 and Federal Commissioner of Taxation v Commercial Nominees (2001) 47 ATR 220) Strict or partial identify not required – (Federal Commissioner of Taxation v Clarke (2011) 190 FCR 206). However, uncertainty as to when a resettlement might be triggered TD 2012/21 indicates that amending a trust deed to add beneficiaries or allow streaming of capital gains and franked dividends would generally not of itself trigger a resettlement (however, amending a deed to hold certain assets for a certain beneficiary would generally constitute a resettlement)

Tax planning opportunities in the event of death Make the most of the CGT death exemption: (i) Assets passing to executor / beneficiary generally exempt from CGT; (ii) BUT, assets passing to non-residents, tax-exempt bodies and superannuation funds do not have access to this concession. Avoid gifts to these entities; Smart use of Primary Residence Exemption by beneficiaries Testamentary Trusts - split income between minor beneficiaries at preferential tax rates Superannuation – smart planning Life insurance – CGT exemption for payment to policy holder, spouse or ‘family member’ (child, parent, grandparent, aunt, uncle, niece, nephew, brother or sister). Exemption will not apply for joint policies between unrelated parties.

CGT – primary residence exemption on death Pre-CGT asset (earlier than 20 September 1985) (i) If sold (proceeding to settlement) within 2 years of deceased death or such long period as the Commissioner allows; or (ii) If sold later than 2 years from deceased death and either the: (1) Spouse of the deceased immediately before death; or (2) A person given a right of occupancy under the deceased’s will; or (3) Beneficiary who acquired the property under the deceased’s will; occupied the property as their main residence from deceased’s death until when they (the taxpayer) disposed of the property. Post-CGT asset; deceased must have occupied main residence continuously and must not have been used for an income producing purpose at the time of their death – other requirements above apply.

CGT – main residence exemption Main residence exemption available on up to 2 hectares of land on which residence sits, provided land used for private / domestic purposes; Main residence exemption not available for subdivided land where main residence does not sit on subdivided parcel A granny flat is a separate CGT asset If land subdivided and or a granny flat is built, was the main purpose to make a profit (i. e. is gain income or capital in nature? ) Taxpayer acquires a new dwelling that is to become main residence – both properties treated as main residence for up to 6 months; Taxpayer acquires property with intention of building to live in as main residence – exemption applies for up to 4 years from when you acquired the land (or such longer time as the Commissioner allows)

Deceased estate – main residence exemption example Worked example: (i) 1980 – Mary brought a house in Eastwood for $100, 000 (ii) 2002 - Mary built a granny flat on this house for $80, 000 and rented the flat out (iii) January 2010 – Mary passed away (iv) June 2012 – Mary’s will is finally administered. Her son John becomes the owner of the property (v) September 2012 – John sells the property in Eastwood for $1, 500, 000. What are the tax consequences? Tax issues: Main residence and granny flat are separate CGT assets; Was the flat built with the purpose of making a profit? (gain on income or capital account); and Valuation needs to be done at time flat built if taxable. Capital proceeds allocated according to land that granny flat occupies; GST – applies to new residences (but not if rented out continuously for 5 years)

Superannuation – taxation issues 1. Superannuation contributions – contributions tax 2. Super fund – tax in the fund Super Fund 3. Distributions – tax on distributions

Contributions – deductibility and concessional contributions cap Concessional contributions are those that are subject to tax at a concessional rate in the fund (and are not otherwise taxed) – essentially, pre-tax salary contributions; Contributions made by a self-employed person under the age of 65 to a complying superannuation fund are generally deductible to the individual; Between the ages of 65 and 75 such contributions by a self employed person are deductible where the person works 40 hours over 30 consecutive days; General concessional contributions cap 2015/16: $30, 000 Concessional contributions cap 49 and over 2015/16: $35, 000

Contributions – concessional contributions cap If excess concessional contributions are made the following consequences arise from 2013/14 onwards: (i) The excess contributions are included in assessable income, but the individual is granted a tax offset equal to 15% of the excess contributions; and (ii) The individual is liable to pay the excess contributions surcharge Excess contributions charge is payable on the excess tax liability arising from the contributions being included in the individual’s assessable income x daily charge rate (i) Daily charge rate = monthly average yield of a 90 -day Australian Reserve Bank bill rate + 3% (ii) The charge is payable from the first day of the income year in which the excess contributions are made until the day before the first notice of assessment that includes an amount of tax on which the individual is liable to pay the charge The charge is only payable once the Commissioner issues a determination

Contributions – excess contributions tax Worked example: David was 60 years old and self-employed for the 2014/15 tax year. He had a taxable income of $200, 000 for the 2014/15 tax year. He was on the top marginal rate of 47% for that year plus a 2% Medicare levy. He made superannuation contributions to an SMSF of $60, 000. He therefore made excess superannuation contributions of $25, 000 for the 2014/15 tax year. (i) Extra income tax liability: $25, 000 x (49% - 15%) = $8, 500 (ii) Excess contributions surcharge: extra income tax liability x daily charge rate as assessed by the Commissioner likely to be an annual rate of around 5. 7% from 1 July 2014 until the day before the notice of assessment containing the tax liability. Approximate excess contributions surcharge: $8, 500 x 5. 7% = $484. 50 (where surcharge applies for a 12 month period)

Contributions – releasing excess contributions 2013/14 tax year onwards: An individual may elect within 21 days of receiving a Notice of Determination of excess superannuation contributions to release 85% of those contributions (the other 15% having been subject to tax in the fund) (Section 96 -5 of the Taxation Administration Act 1953 Schedule 1); An election form to release contributions is usually enclosed with the Notice of Determination of excess contributions from the Commissioner; The amounts to be released and the superannuation interests to which they related must be specified in the form; In an election is made, the ATO will issue a release authority to the member’s fund, the fund must release the money to the ATO within 7 days, the ATO will offset the money against any outstanding debts and return the balance to the taxpayer; Money relating to the release is non-assessable non-exempt income (s 303 -15 ITAA 1997) The original excess concessional contributions are still included in your assessable income

Contributions – excess contributions tax 2011/12 and 2012/13 tax years Excess contributions tax for 2012/13 and earlier years a 31. 5% tax was levied on excess contributions, essentially meaning that in addition to the 15% tax these funds suffered in the fund they were essentially subject to tax at the top margin rate of 46. 5% 2011/12 and 2012/13 tax years and earlier: an individual can only release up to $10, 000 of excess contributions; The Commissioner could make a determination that excess contributions of $10, 000 or less could be disregarded where there were no excess contributions for 1 July 2011 or earlier, and a tax return was lodged for that income year within 12 months of the end of the relevant year Refund claims prior to 1 July 2011 are difficult. Generally only payments made by mistake can be refunded

Non-concessional contributions Section 292 -90 ITAA 1997 non-concessional contributions are contributions not included in the assessable income of a complying superannuation fund. Common examples include: (i) Contributions for which a deduction was not allowed by the contributor (e. g. contributions made for a person who doesn’t satisfy the 10% rule or after tax super contributions; (ii) Contributions made for the person by their spouse; (iii) Contributions made in excess of a person’s CGT cap amount (e. g. contributions made to the fund from the sale of a small business assets 2014/15 CGT cap was $1. 355 million) But does not include government co-contributions

Excess non-concessional contributions Non-concessional contributions cap: 2015/16: $180, 000 and 2014/15: $150, 000; Individuals may be eligible to bring forward following 2 years worth of contributions cap (for 2015/16 where this was possible this would give an individual a contributions cap of $540, 000) (section 292 -85 ITAA 1997); Excess concessional contributions that are not released count towards the excess nonconcessional contributions cap An individual is liable for excess non-concessional contributions tax if they do not release an amount for the excess non-concessional contributions (section 292 -80 ITAA 1997). For 2015/16 these excess non-concessional contributions are taxed at 49%. This would result in a margin tax rate of 98% for a taxpayer on the top marginal rate. However, overall tax on excess non-concessional contributions is limited to 95% for the 2015/16 tax year

Release of excess non-concessional contributions To avoid liability to excess non-concessional contributions tax, a taxpayer may elect to release the excess contributions plus 85% of the associated earnings amount The associated earnings amount approximates the earnings on the excess non-concessional contributions. Essentially, the general interest charge for each quarter on a daily compounding basis is applied to the excess non-concessional amount Where the ATO determines that a taxpayer has exceeded their non-concessional contributions cap, the Commissioner must make a written determination stating their excess non-concessional contributions and their associated amount The taxpayer may elect to release the “total release amount” – being the excess non-concessional contributions plus 85% of the associated amount (the other 15% being tax in the fund on what would have been earned on those non-concessional contributions). The election must apply to the entire amount and not just to part of the amount

Release of excess non-concessional contributions A superannuation fund that receives a notice of release must pay the total release amount to the taxpayer within 21 days of receipt of the notice pay to the individual the lesser of: (i) The amount stated in the release authority; or (ii) The maximum amount that can be released for the interests that they hold. The taxpayer can also make an election not to release excess non-concessional contributions on the basis that the value of their superannuation interests is nil. The Commissioner must make a determination that this is the case (e. g. where the individual has been paid all of their superannuation benefits by the time they receive the excess non-concessional contributions determination)

Division 293 tax – concessional contributions Where an individual’s “taxable contributions” for an income year exceed $300, 000 the individual will be liable to an extra 15% tax on their concessional superannuation contributions; “Taxable contributions” are the sum of: (i) Income for surcharge purposes (defined in section 995 -1 ITAA 1997); 1. Total taxable income (including salary and investment income); 2. Reportable fringe benefits; 3. Total net financial investment losses and net rental property losses; (ii) Low tax contributions – essentially concessional superannuation contributions made for the individual (whether by employer or if self-employed, contributions for which a deduction was claimed) less excess concessional contributions (iii) BUT does not include super funds payments not subject to tax (beneath low-cap amount)

Division 293 tax - assessment / payment The Commissioner makes an assessment of Division 293 tax based on an individual’s income tax return and information from superannuation providers; Division 293 tax is payable 21 days after the Commissioner gives a Notice of Assessment (section 293 -65); Division 293 tax can either be paid by the individual or from the individual’s superannuation fund where they have completed a release authority issued by the Commissioner In the case of a defined benefits fund, the Division 293 liability may be deferred to a debt account to which annual interest is applied and the individual may make voluntary payments off this debt

Spouse contributions Contributions can be made for a spouse who: (i) is less than 65 (no requirement to be employed); or (ii) is aged from 65 to 69 and working full time or part time (40 hours over 30 consecutive days) For a spouse earning less than $10, 800 per year, a taxpayer can decrease their taxable income by up to $540 (they can contribute up to $3, 000 from after tax income and receive a tax offset equal to 18% of this amount); The tax offset gradually decreases if a spouses income is over $10, 800 and reduces to nil where the spouse’s income is $13, 800 or more Spouse contributions are not subject to contributions tax Spouse contributions can be withdrawn tax free Spouse contributions count toward their non-concessional contribution cap

Contributions splitting Only concessional (before tax) contributions can be split – being the lesser of: (i) 85% of the concessional contributions for the taxpayer for that year; or (ii) The amount up to the concessional contributions cap Contributions must first be made to the taxpayers fund Can apply to the fund after year end to make a contribution to spouse super fund (if the fund permits this – there will usually be a charge) Can be made for a spouse: (i) (ii) Under preservation age (55 if born before 1 July 1960) who does not work; Under 65 but above preservation age who either works full time or part time (that is 40 hours over 30 consecutive days) Split contributions do not count towards spouse’s concessional contributions Particularly beneficial to a spouse who does not have a lot of superannuation contributions and both partners less than 60 because when they reach 60 the first $195, 000 is not taxed when it is withdrawn

Tax on a fund - tax advantages of using an SMSF Income derived by super fund taxable at 15%; Capital gains received by a super fund are taxed at 10%; Concessional contributions made to fund are taxed in the fund at 15%; Non-concessional contributions (e. g. after tax contributions, contributions for which a deduction not allowed, contributions made on behalf of a spouse, rollovers from foreign funds) are not taxed in the fund 0% tax on earnings of fund when in pension phase

Taxation on payment of a super death benefit Generally payments (lump sum or pension) made to members over the age of 60 are tax free (see table below) Lump sum payments to a “death benefit dependent” or a person who is “terminally ill” are also tax free Non-dependents can only receive a lump-sum – taxable per table below Non-dependents - from 1 July 2007 they cannot receive a pension – pensions before this date are taxable at dependent tax rates

Taxation on payment of a super death benefit Death benefit recipient Lump sum Pension – tax rates (slide below) Spouse (include de facto and same sex, but not a former spouse) Yes – Tax free Yes Child under 18 Yes – Tax free Yes Child 18+ and independent Yes – Taxed No 18 -25 & financially dependent Yes – Tax free Yes 25+ & financially dependent Yes – Tax free Yes Any age & “interdependent” relationship Yes – Tax free Yes Any age & serious disability Yes – Taxed Yes

Taxation on payment of a super death benefit Age of beneficiary / deceased Part of Effective tax rate Beneficiary or deceased is greater than 60 years old Taxed element 0% Untaxed element Marginal tax rate less 10% tax offset Beneficiary or deceased is less than Taxed element 60 years old Non-dependent – receipt of lump sum Marginal tax rate less 15% tax offset Untaxed element Marginal tax rate Taxed element Marginal tax rate or 15%, whichever is lower, plus Medicare levy Untaxed element Marginal tax rate of 30%, whichever is lower, plus Medicare levy

Who is a ‘death benefit dependent’ Death benefit dependent (sec 302 -195 ITAA 1997): (i) Spouse or former spouse (ii) Child under 18 (iii) Person who deceased had an ‘interdependency relationship’ (iv) Person dependent at ‘common law’ An ‘interdependent relationship’ exists where two persons (sec 302 -200 ITAA 1997): (i) Have a close personal relationship; and (ii) Live together (unless either or both suffering from a disability); and (iii) One or each provides the other with financial support or personal care.

General principles – payment of a death benefit Superannuation does not automatically form part of your estate on death. The assets of a super fund fall to be administered by the trustee: (i) According to the trust deed; (ii) As modified by the SIS Act / regulations (The trustee is not bound to follow a direction in a will; Ioppolo -v- Conti [2015] WASCA 45) A death benefit must be cashed (pension or lump sum) immediately upon members death (SIS reg 6. 21) A death benefit must be paid to: (i) A dependent; (ii) The deceased legal personal representative / executor; (iii) If neither of the above can be found, such person as the trustee nominates (SIS reg 6. 22)

Death benefit nominations Must make a death benefit nomination to direct the trustee you would like your superannuation distributed. There are 3 types of nomination: (i) Non-binding nomination (ii) Binding death benefit nomination – must renew every 3 years (iii) Non-lapsing binding death benefit nomination (independent or built in to trust deed) Any nomination must be in accordance with trust deed Care should be taken to comply with trust deed and completing nomination form – otherwise nomination may not be binding (Munro v Munro [2015] QSC 61) Some authority that non-lapsing binding death benefit nominations are valid for SMSF’s (Munro v Munro [2015] QSC 61) May have multiple nominations (e. g. Pay mutiple pensions or lump sums) May have cascading nominations (e. g. If a beneficiary predeceases taxpayer, then the taxpayer has a secondary nominee)

Advantages / disadvantages of different nominations Type of nomination Advantages Disadvantages Non-binding nominations Flexibility for trustee decision making Deceased has no say in who super is – can take account of tax and non-tax distributed to considerations Binding nominations – renewable every 3 years (i) Super distributed according to deceased wishes (ii) Difficult to challenge if done properly Non-lapsing binding nomination (i) Super distributed according to (i) No flexibility for tax planning deceased wishes (ii) Some authority that it is binding for an SMSF (see above) (iii) Less administration – once off nomination (i) No flexibility for tax planning (ii) More administration – must be renewed every 3 years

Reversionary pension If deceased was in pension mode – a nomination could be made to pay a reversionary pension to a death benefit dependent – spouse, minor child or other dependent (lump sums only payable to non-dependents SIS reg 6. 17 A) Any nomination for a reversionary pension must accord with trust deed and terms of pension Advantages Disadvantages Preserve tax-free status of fund if in pension mode Can’t make nomination during accumulation phase Less likely to be challenged that where no nomination – ATO considers a reversionary pension prevails over a BDBN where trust deed silent Lacks flexibility for tax planning

Testamentary trusts – tax advantages Now typically a standard clause in most wills – a trust created by will upon death Tax advantage: can distribute income to resident minors (aged less than 18) at preferential marginal tax rates (excepted trust income within sec 102 AG ITAA 1936) (i) 0% tax on distributions up to 18, 200 (ii) Highest marginal tax rate of 47% (plus Medicare levy) only reached when distribution exceeds $180, 000 + In comparison, distributions to minor beneficiaries from inter-vivos trusts taxed at penalty rates of 47% (plus Medicare levy) Worked example: a widow on $100, 000 income with 5 children; estate of $80, 000 (2015/2016 year) Scenario Effective tax rate Tax paid Tax on $80 K paid to widow 37% on widow $29, 600 Tax on $80 K paid to children by existing family trust 49% on children $39, 200 Tax on $80 paid to children by testamentary trust 0% on children $0

Testamentary trusts – advantages / disadvantages Advantages Disadvantages Tax planning - Income can be distributed to minor beneficiaries are preferential tax rates Lack of long term flexibility – beneficiaries determined by will. Cannot add a beneficiary Some flexibility – the trustee can determine how distributions are made No access to main residence exemption for CGT or land tax Asset protection – creditors, vulnerable beneficiaries On-going administrative costs Streaming of capital gains and franking credits

Superannuation proceeds trusts Trust set up, preferably under will, to hold superannuation money after death Ideally should be established under a will (otherwise ATO may not respect that income distributions to minor beneficiaries is “excepted trust income”) Similar tax advantages to a testamentary trust Generally set up to segregate ‘death benefit dependents’ from other beneficiaries Not that all capital beneficiaries of the superannuation proceeds trust must be death benefit dependents.

Possible changes to negative gearing and superannuation Internal debate within the coalition government about scrapping negative gearing Not clear whether changes would affect existing property or just new property There will be no changes to superannuation for the over 60’s Speculation of increased contributions tax, particularly those with incomes greater than $100, 000 (marginal rate less 20%): (i) Speculation that rates may increase to 17% for those earning over $100, 000; (ii) Speculation that rates may increase to 25% for those earning over $180, 000; (iii) But, contributions tax would be scrapped for those earning $17, 000 or less Speculation that it would be politically easier for government to make changes to superannuation for high income earners, rather than scrapping negative gearing; There is a reasonable chance in the longer term that many of the current tax breaks for superannuation will be far less generous, particularly for high income earners / those with a large amount of superannuation

New proposed small business CGT rollover – 2015 exposure draft released To give small business owners more flexibility in changing their ownership structure from a company to a trust, partnership or being a sole trader Transferor entity: less than $2 million turnover or less than $6 million in assets Must transfer all CGT assets: trading stock, revenue assets and depreciating assets without realising a taxable gain Transferee and transferor must be Australian tax resident Transfer does not have the effect of changing the ultimate economic owner (with a trust, ownership within a family group permitted) Transferee inherits tax cost base of transferor Cannot transfer to an exempt tax vehicle or a superannuation fund

Land tax – New South Wales Land tax is imposed on the owner of land; It is imposed on the “unimproved value of the land” NSW land tax thresholds are set out in the table below: Taxable value of land Land tax payable $412, 000 or less 0 > $412, 000 but < $2, 519, 000 100 + 1. 6% of the value over $412, 000 > $2, 519, 000 $33, 812 + 2% of the excess over $2, 519, 000 Land tax is assessed on a quarterly basis as at 1 July, 1 October, 1 January and 1 April

Land tax – New South Wales Exemptions There a number of specific exemptions that apply from Land Tax; Principal place of residence exemption – one property per family (i) but not in respect of any part of the land on which another person has exclusive use or under an excluded residential occupancy (bed sits, B & B’s and granny flats) occupation Owner moving house may treat both residences as exempt provided the new residence is acquired within 6 months of the relevant taxing date and the old residence sold within 6 months of the relevant taxing date; Owner has acquired unoccupied land intends to build or renovate – exclusion for 4 years after building commences; Owner moves away from property. Exemption for 6 years provided: (i) Owner does not have another principal place of residence; and (ii) The owner lived on the property as their primary place of residence for at least 6 months continuously before moving away. (The land may be leased on a short term basis to cover maintenance and expenses)

Land tax – New South Wales - Exemption on death of owner (i) for 2 years after the person dies; or (ii) where a person occupies the land/house under a right given in a will Primary production exemption: (i) if land zoned as rural (rural, rural residential or non-urban) the dominant purpose / use of the land must be for a primary production purpose to be exempt: keeping bees, running horses; and (ii) If the land is not zoned as rural the primary production activity must also have a significant and substantial commercial purpose for the land to be exempt. Land used primarily for low cost accommodation; is exempt; Land used and occupied as an aged care facility is exempt; Land owned by religious and no-for profit organisations is generally exempt.

Payroll tax - NSW Payroll tax is a state and territory tax imposed and controlled by 8 separate legislatures; Payroll tax is a tax on wages, allowances and benefits paid to employees; The payroll tax rate in NSW is 5. 45% There is generally a threshold at which payroll tax is payable. In NSW: Annual Monthly (28 days) Monthly (30 days) Monthly (31 days) $750, 000 $57, 534 $61, 644 $63, 699 Payroll tax is paid on a monthly basis. Due by the time return is due Returns are due 7 days after the end of the month, except June when they are due within 21 days

Payroll tax - NSW General inclusions in the payroll tax base: (i) Wages and salary; (ii) Non-cash benefits – utilising the FBT taxable amounts (iii) Gifts; (iv) Holiday pay and long service leave; (v) Payments to contractors (although there are 9 exemptions for genuine independent contractor relationships); (vi) Superannuation contributions. Exclusions from the payroll tax base include: (i) Travelling allowances up to 75 c/km and accommodation up to $250. 85; (ii) Bona fide allowances to non-working directors for expenses (iii) Maternity leave from 1 July 2007, Paternity leave from 1 July 2010; (iv) GST; and (v) Payments to volunteer emergency workers

Payroll tax – NSW – general exclusions General exclusions from payroll tax include: (i) Religious organisations; (ii) Public benevolent institutions; (iii) Public or not-for profit hospitals; (iv) Schools / colleges providing education below secondary level; (v) Municipal councils; (vi) Charitable organisations.

Payroll tax – NSW – grouping provisions These are crucial as if companies are grouped, only 1 company will be able to utilise the exemption threshold. Others simply pay the flat rate tax on relevant wages and benefits; Determining whether a group exists is usually a determination made by a Commissioner of the OSR; Broadly, a determination that a payroll group exists may be made under 5 different provisions: (i) Two or more companies are related under the Corporations Act 2001 such that they have a parent-subsidiary relationship;

Payroll tax – NSW – grouping provisions Broadly, a determination that a payroll group exists may be made under 5 different provisions: (i) Two or more companies are related under the Corporations Act 2001 such that they have a parent-subsidiary relationship; (ii) Employees of one business perform duties solely or mainly for the benefit or another business; (iii) There is an agreement between two businesses relating to the performance of duties by employees of one, solely for the benefit of the other; (iv) The businesses are commonly controlled by the same person; (v) Two or more groups have common members and as a result are subsumed in to a larger group of three or more members.

Contact details Ben Symons – Barrister-at-law State Chambers 52 Martin Place Sydney NSW 2000 Ph: 9223 1522 Email: bsymons@statechambers. net