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Stamp duty and land tax update

Introduction  The NSW Parliament recently passed the State Revenue Legislation Further Amendment Bill 2020 which, among other things, clarified the situation concerning discretionary trusts when it comes to the imposition of surcharge purchaser duty and land tax applicable to foreign persons. The Bill also makes amendments to provide  exemption from and refunds of surcharge purchaser duty and surcharge land tax by the trustee of a discretionary trust if the trust prevents a foreign person from being a beneficiary of the trust.   Surcharge duty and land tax  For the past 4 years, the NSW State Government has been imposing a surcharge stamp duty and land tax for foreign purchasers/owners of real property in New South Wales. If residential property is held by a “foreign person”:  Surcharge stamp duty, of an additional 8% when purchasing property; and   Surcharge land tax, of an additional 2% annually based on land ownership as at 31 December,  will be payable on top of the usual rates of duty and land tax (if any).   Given that the tax-free threshold for land tax does not apply to surcharge land tax, even for a property with a registered land value of $500,000 surcharge land tax of $10,000 is payable (i.e. even when no standard land tax is payable).   Family trusts potentially subject to surcharge  People who do not have citizenship or PR are understandably caught by the surcharge regime, but what has surprised many is that a number of locally established family trusts (which generally take the form of a discretionary trust) fall under the definition of “foreign person”. This is because a discretionary trust is deemed to be a foreign person if any one of its potential beneficiaries (even if not a taker in default) is a foreign person. In this regard, it doesn’t matter that the trustee has not and does not intend to distribute to such beneficiaries, and the potential foreign beneficiaries are not named.   Often, family trust deeds will specify as potential beneficiaries not just named family members, but such members’ families (usually widely defined, e.g. parents, siblings, uncles/aunts, nieces/nephews, grandchildren), as well as companies/trusts in which any of the beneficiaries have an interest, and in many cases charitable institutions (including overseas institutions). To see the wide-reaching operation of this deeming provision, the NSW Revenue website gives the following example:      Say that XYZ Discretionary Trust is a trust whose beneficiaries include A (as a named person) and any company or trust in which named beneficiaries have an interest. Person A in turn owns 1 share in ABC Pty Ltd, which is majority owned by a foreign person B. In this case, XYZ Discretionary Trust will be deemed to be a foreign person because ABC Pty Ltd is a potential beneficiary of XYZ Discretionary Trust. If XYZ Discretionary Trust purchases real property in NSW, then surcharge purchaser duty and surcharge land tax will become payable. In this case, it doesn’t matter that XYZ Discretionary Trust has never made a distribution to ABC Pty Ltd and never intends to do so.   By way of further illustration, one recent family trust we reviewed specified as a potential beneficiary “schools, universities, colleges and other educational bodies of any kind either within or outside Australia”, which similarly resulted in the trust being a foreign person.   Another way in which a family trust can be caught is when it includes extended family members who are not based in Australia.   The new Bill clarifies and confirms this wide-reaching operation, with a new section introduced stating that “The trustee of a discretionary trust is taken to be a foreign trustee for the purposes of this Chapter unless the trust prevents a foreign person from being a beneficiary of the trust”.      How we can assist   If you are looking to acquire (or already own) real property through a family trust, the Bill allows an opportunity for family trusts to put through amendments into the deed to “prevent a foreign person from being a beneficiary of the trust” in order to manage any unintended surcharge purchaser duty consequences.  Although the Bill allows for a buffer period until 31 December 2020, we recommend that your family trust deed be amended as soon as possible if the family trust would be deemed to be a foreign person under the surcharge provisions.   If you are unsure whether the terms of your trust deed “prevents a foreign person from being a beneficiary of the trust”, H & H Lawyers will be happy to review your trust deed to check whether it might fall within the ambit of the surcharge regimes. If we find that the terms of the trust deed causes your family trust to be deemed a foreign person, we can then further assist in implementing the necessary amendments to the trust deed.  


Casual vs Permanent

On 20 May 2020, the Full Court of the Federal Court of Australia handed down its decision in WorkPac Pty Ltd v Rossato. The case centres around labour hire firm WorkPac, which employed Robert Rossato as a mine worker at two Queensland mines owned by Glencore. Mr Rossato was a casual employee, on rolling contracts, over a three-and-a-half-year period. As a casual, he was paid an extra 25 per cent loading on top of his wage — which is the usual practice to make up for not being given benefits such as annual leave. The Full Federal Court dismissed WorkPac’s application for a declaration that Mr Rossato was a casual employee, instead finding that Mr Rossato was a permanent employee. It was found that because Mr Rossato's employment was "regular, certain, continuing, constant and predictable", and he was given rostered shifts well in advance, he was eligible to entitlements that full time employees receive under the National Employment Standards (NES) in the Fair Work Act 2009 (Cth) and the relevant Enterprise Agreement: being paid annual leave, paid personal/carer’s leave, paid compassionate leave, and payment for public holidays. This is an important decision for employers who engage casuals, whether directly or as a host employer. Pending any intervention by the Federal Government or appeal to the High Court, employers should now carefully review their casual employment arrangements, update the terms of their casual contracts, and revisit their arrangements with labour hire companies and their workers.  In particular: Employers should review their casual arrangements with a view to determining whether some other form of engagement is more appropriate – including part time and fixed term arrangements. Assuming casual engagement is still appropriate, specific attention should be given to the employee’s written contract to ensure that the casual loading is a separately identifiable amount that is stated to be paid as a result of the employee not being entitled to NES or other entitlements peculiar to permanent employment. We also suggest a statement to the effect that if the employment is subsequently determined not to be casual employment, the employer is entitled to repayment of the casual loading. Regular reviews of casual arrangements should be conducted – at least once every 12 months – to assess the likelihood of the employment being a “firm advance commitment” of employment. We can assist you if you have any questions about how the Workpac v Rossato decision may impact the work arrangements in your own organisation or more generally in relation to how you are employing or engaging your workforce.  


Death of K-pop star, Goo Hara, reminds us the importance of having a valid Will

Anyone who is familiar with K-Pop news would have heard about the death of K-Pop singer Goo Hara, former member of Korean girl group Kara. Following her death, the sad childhood of the singer came into light due to a legal claim brought forward by the singer’s mother under the Korean Inheritance law. It was reported that Goo Hara’s mum abandoned her and her older brother when Goo Hara was only eight years old and never cared for them or contacted them since the abandonment.  It was reported that Goo Hara’s mother subsequently gave up her legal parental and custodial rights in relation to Goo Hara and her brother in 2006. Young Goo Hara was subsequently cared for by her older brother and her grandparents while her father was mostly away to work on construction sites in order to support the children financially. Goo Hara was 28 when she died and having never been married, she did not have any surviving spouse or any children. Under the Korean Inheritance Law, if you die without a valid will then the estate of the deceased will be distributed in the following order: Children (or grandchildren) Parents (or grandparents) Siblings Relative within the four degree of collateral consanguinity And if there is more than one person standing in the same rank then they share the estate equally. Since the death of Goo Hara, Goo Hara’s father has given his share of Goo Hara’s estate to Goo Hara’s brother stating that he always felt guilty not being there for the children to support them emotionally as he was away from home working to support the family financially and the children had to rely on each other during his absence. Currently, the singer’s mother has appointed a lawyer and filed a legal proceeding to claim her half share of the singer’s estate as the mother of the singer under the Korean Inheritance Law. The singer’s brother stated he is upset that the person who caused so much pain in his sister’s life now stands to benefit from her death and he vowed to defend his sister’s estate. You may think there is injustice being served here if the Korean legal system grants Goo Kara’s mother a share of the singer’s estate. But as the Korean Inheritance Law currently stands, unless there is a different way of defining a ‘mother‘ under the Korean Inheritance Law to exclude a mother who may have been absent from fulfilling a mother’s role during the deceased’s life, the Court must grant the mother the one half share of the singer’s estate. Similarly in NSW, when a person dies without a valid will in place, Succession Act 2006 (NSW) will determine how the deceased’s estate will be distributed. In NSW, distribution of the estate will generally go first to the surviving spouse, and if there is no surviving spouse then in the following order: Children Parents Brothers and sisters Grandparents Aunts and uncles Cousins The law does not take into account the type of relationship you had with your family members when distributing your estate after you die. The only thing the Court will consider is how you are legally related to the deceased. There are many similar cases in NSW. Recently there was a case in which a father, who was abusive and had a history of domestic violence, was issued with Apprehensive Violence Order (AVO) to prevent him from approaching the son in order to ensure the child’s safety. Soon after the Court’s AVO order, when the child was still very young, the mother divorced the child’s father and moved to Sydney. The child grew up and by the time the child reached his late twenties, having worked hard, he had accumulated wealth of his own. He maintained a close relationship with his mother, but did not have any form of relationship with his father. His father never contacted the family, and they lived separate lives. Later the child, still in his twenties, died suddenly from an accident. At the time of his death he was not married and did not have any children. The child, who was still young, never thought about having his estate planning in place and consequently did not have a valid will at the time of his death. The mother, in order to finalise her son’s estate, filed documents to the Court to be the administrator and the sole beneficiary of her son’s estate. The Court informed the mother that when a person dies without a will then law determines as to who the beneficiaries of the estate are. And in accordance with the Succession Act 2006 (NSW), as the deceased is not survived by a spouse or children, next in line to receive the deceased estate were the parents of the deceased. Therefore, both the father and the mother had to share equally in the late son’s estate. The mother was devastated by the fact that the father who was abusive to her son, who took no part in raising him and lived his life as a stranger to her son during her son’s life now stood to benefit from her son’s death. However, the law is clear on this matter. The distribution of the estate of an intestate must be in accordance with the law, and the law states that when a person dies and is not survived by any spouse or children then it is the parents of the deceased who are next in line to share in the estate of the deceased. The law does not look into the kind of relationship the parents had with the child. The fact that one is the parent of the child is the only qualification that is needed under the Succession Act. Every family has a different story and different relationship that is unique for that family. However, the law does not take any of these factors into account when it comes to distributing the estate of a deceased person who died without a valid will. The only way you can have certainty and control over what happens after you die is through having a valid will in place. Many will agree and recognise the importance of having a valid will in place, but for most this is easily pushed down to the bottom of their ‘to do’ list. However, as we currently experience a period of uncertainty and have more time to spend at home during this Coronavirus pandemic, maybe it is time to give some thought to estate planning to preclude some uncertainty and heartache for your family.  


Superannuation and Estate Planning

Since the introduction of Superannuation Guarantee in 1991, most Australians will have some form of superannuation as part of their asset. For most, by the time they approach their retirement age, superannuation will usually be their biggest asset besides their residential property. The younger generation, as they have just commenced their careers, would not have had much opportunity to accumulate significant superannuation saving or assets in their own names. Therefore, for most young adults, estate planning is something they will not consider until much later in their life. However, estate planning is important for all ages, including the younger generation, regardless of whether they own any significant assets. The reason for this is due to an automatic life insurance that is part of most superannuation. Most superannuation will include life insurance. For young adults, their superannuation death benefit payment from the life insurance will far exceed their superannuation savings balance. And in an untimely death of a young adult, the superannuation death benefit will usually be the largest asset that will be left behind. Most people assume that their superannuation death benefit will be automatically paid to their next of kin, but is it really? Often many fail to execute a binding death benefit nomination for their superannuation and this means the trustee of the superannuation fund can exercise their discretion when making a death benefit payment. Under the Superannuation Industry (Supervision) Act 1993 (SIS Act), superannuation death benefit must be paid to the following: current spouse; child of the deceased (including child of a current spouse); person in an interdependency relationship with the deceased; or deceased’s legal personal representative. Section 10 of the SIS Act states that an interdependency relationship exists where two people show, for the time period immediately before the death of the deceased, that they have a close personal relationship; live together; one or each of them provides the other with financial support; and one or each of them provides the other with domestic and personal care. In Superannuation Complaints Tribunal (SCT) determination D09-10\023, an eighteen-year-old man died (deceased) without a will. He had a girlfriend, who was living at her parent’s home. Three months before this young man’s death he moved into his girlfriend’s parents’ home and paid board of $70 per week. At the time of the death of the deceased, the deceased had only $1,537 accumulated savings in the superannuation account. However, due to the life insurance the death benefit payment from the deceased’s superannuation amounted to $131,437. The trustee of the deceased’s superannuation fund initially decided to pay the death benefit amount to the deceased’s parents but the girlfriend of the deceased lodged a complaint to SCT stating that she was in an interdependency relationship with the deceased. It was decided by the Tribunal to overturn the original decision of the trustee of granting the death benefit payment to the deceased’s parents and awarded the full $131,437 to the girlfriend whom he lived with for three months. To most people, this would seem like an unfair decision, but given the fact that the deceased lived away from his home, SCT said that his parents failed to fall into any of the categories listed by the SIS Act when considering to whom the death benefit was to be paid. Together with the absence of a binding death benefit nomination, SCT found that the girlfriend, despite the fact that they lived under one roof for only three months, was the only person that fit the definition of “interdependency relationship” at the time of death of the deceased. If the deceased desired for his next of kin, in this case his parents, to be the beneficiary of his death benefit payment then he should have executed a binding death benefit nominating his “Legal Personal Representative” as the recipient of his death benefit and then had a will in place leaving his instructions.


Needs for employment contract in writing

Q: Some mid-career employees have been working for 10 years without a formal employment contract. I've had no problem without an employment contract, but should I still have a written employment contract? (Male in his 40s working in the HR department of a Japanese company) A: Employment contracts do not necessarily have to be reduced in writing. Oral employment contracts have legal effect. Even if specific terms of employment contract have not been discussed, there is in principle an employment relationship if an employee actually works for an employer. It goes without saying that wages, working hours, annual leave and superannuation, etc. must meet the minimum labour standards set by law, even if no detailed employment conditions are negotiated. However, labour standards set by law are complex. Employers may inadvertently violate minimum labour standards if they do not ensure that minimum employment standards are well covered in the employment contract. Fair Work Ombudsman may impose a fine in case of violation of the standards. Also, even if employees are employed under conditions that exceed the minimum labour standards, it is necessary to confirm and reduce in writing that both parties understand the details of the terms. When an annual salary is presented (as opposed to hourly wages), there could be a disagreement between the parties about what their wage covers. For example, an employer may understand that the salary includes reasonable overtime work, while an employee understood that overtime works are billable separately. In this case, the employer is legally required to notify the employee in writing that the overtime payment is included in the salary. Another common issue is that in the absence of a contract, an uncertainty arises whether a notice is required to terminate an employment contract. Generally, if an employment contract states that a notice of dismissal should be given before certain weeks (except for unfair and illegal dismissal), an employee must be informed of the termination before that period. However, in the absence of a written agreement, the notice of termination must be a reasonable period. The reasonable period is determined case-by-case. If you hire a position that involves creativity, you need to make sure who owns the intellectual property that arises as your employees perform their duties. In addition, it will be disadvantageous for employers if an employment contract fails to incorporate confidentiality obligations and non-competition obligations after termination. Especially for mid-career employees or employees in senior management positions, if above terms are not stipulated in their employment contract, it can lead to major legal issues later. Though it may be difficult to ask an employee to sign an employment contract suddenly, it is recommended that a written employment contract is presented to employees at their promotion.

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