Risk management

Commercial Leases

A commercial lease, simply put is the agreement between the owner of business premises (the lessor) to the tenant that is to occupy those premises (the lessee).

The terms of each commercial lease can and usually do differ depending on the nature of the property, the location and the use to which the premises are to be put. There are however many terms that are common to all leases, even if they may be drafted differently in each lease document.

Sometimes confusion arises as to whether a lease is of commercial premises as opposed to retail premises. Retail leases are covered by the Retail Leases Act and there are many additional obligations on the Lessor in relation to retail premises such as the provision of a Disclosure Statement, minimum lease term etc

Prior to entering into a lease, it is a good idea to obtain a condition report or at least take photos or video to show the condition of the premises as at the commencement date and to show what fixtures and fittings were in place.

Some key considerations in relation to a business or commercial lease include:

  • Development consent for the intended use of the premises
  • Term
  • Options to renew or buy
  • Rent
  • The process for and timing of rent reviews (CPI, market, fixed increase etc)
  • Outgoings
  • Security bonds
  • Director guarantees
  • Costs
  • Insurances
  • Repair and maintenance obligations
  • Lessee’s make good and refurbishment obligations on termination
  • Any pre-lease works/promises made
  • Assignment and sub-letting/licensing

It is not uncommon for the parties to enter into a Heads of Agreement or similar document whereby some or all of the above matters and more are documented briefly, such that the key terms are signed off as agreed, but it is usually important to ensure that this document itself doesn’t create a lease and is in fact subject to the parties negotiating and signing a formal written Commercial Lease.

Leasing can be complicated so it pays to seek the advice of a lawyer before entering into a Commercial Lease, an Agreement for Lease or a Heads of Agreement.

FURTHER INFORMATION

Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to the leasing or licensing of business premises, commercial law or business related matters, contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au.

This information is general only and is not a substitute for proper legal advice. Please contact McKillop Legal to discuss your legal concerns or objectives.

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Are you hiring an Employee or a Contractor?

Are you hiring an employee or a contractor? This is an important question often overlooked by business owners.

What is the difference between an employee and a contractor?

The difference between an employee and an independent contractor is based on many different factors. No single factor determines whether someone is an employee or a contractor. Instead, the Courts will look at each case and make a decision based on the totality of the relationship between the parties when determining the status of an engagement.

There are some common factors that may contribute to determining whether a person is an ‘employee’ or an ‘independent contractor’ (or ‘contractor’ or ‘sub-contractor‘):

Employees

Employees generally:

  • do not operate independently of the business engaging them
  • are directed in how and when to perform their work
  • cannot delegate their work to someone else or pay someone else to do it
  • are paid per hour, project or a commission
  • are provided with all tools and equipment required to perform their work or gets an allowance to provide these things
  • take no commercial risks – the business is responsible for the work performed or fixing any issues with it
  • have an expectation of continuing work (except casuals)
  • are generally not employed by other businesses at the same time (at least for most full time employees)

Contractors

Contractors on the other hand:

  • do operate independently of the business engaging them
  • have freedom as to how and when to perform work, subject to the terms of the arrangement
  • may delegate or further subcontract out their work, subject to the terms of the agreement (Services Agreement or Contractor Agreement etc)
  • are paid for a result or outcome, even if this is on an hourly rate basis, a commission arrangement or per project
  • supply most of their own tools and equipment
  • are liable for the work performed and are liable to remedy or pay the costs of fixing any defects
  • are responsible for their own employees and sub-contractors
  • are usually engaged for a specific task or purpose
  • may accept or seek work from other businesses

Other differences in their rights and the obligations or the employer or principal include:

  • Independent contractors issue invoices (or tax invoices if registered for GST) whereas employees are paid regularly (weekly, fortnightly or monthly).
  • Employees are entitled to the benefit of the rights under the Fair Work Act 2009 (Cth) (FW Act) and any relevant Award or industrial agreement (including for things such as leave, overtime etc) as well as having the compulsory superannuation contribution paid to their superannuation fund.
  • Employees have tax withheld and paid on their behalf to the Australian Taxation Office where as an independent contractor will pay their own tax to the ATO (and GST if registered for GST).

What if you get it wrong?

If you pay someone as a contractor when they are really an employee, the employee may miss out on important benefits such as leave entitlements and superannuation. Although you may have paid the agreed rates or price and any applicable GST, the employee may be able to pursue the business that engaged them for those unpaid entitlements and the employer may be prosecuted. Also, if the “contractor” doesn’t pay tax, the employer may be liable for the tax that ought to have been withheld.

Many businesses that deliberately arrange in “sham contracting” (where a person ought to be an employee but they are engaged and remunerated as a contractor) are penalized by the Fair Work Ombudsman under the FW Act.

Another unexpected consequence can be that where those engaged as independent contractors are not actually independent at all (for example where they do not provide services to any other businesses) or are really employees can be the issue of payroll tax payable to Revenue NSW under Payroll Tax Act 2007 (NSW). Contractors can be deemed employees for the purpose of payroll tax if they don’t offer their services to the general public, working only for one business.

FURTHER INFORMATION

Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to any employment related issue or any business/commercial law matter, contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au

This information is general only and is not a substitute for proper legal advice. Please contact McKillop Legal to discuss your needs.

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Power of appointment

You may have a family trust or a discretionary trust that your accountant prepared for you.

Perhaps you are the trustee or that trust, or one of several trustees such as your spouse or partner or perhaps you are a director of a company that is the trustee.

There are a number of terms used in trust deeds that are not commonly understood, such as the “settlor”,vesting date” or the “excluded class”.

One of the things that is often:

  • not properly considered at the time of establishing the trust; and /or
  • overlooked at the time estate planning documents are being drafted

is the “power of appointment”.

The power of appointment is a power granted to the “appointor” named in the trust deed to decide who should be the trustee of the trust.

This power of appointment is the most important power in a trust deed as it generally affords the appointor the power to remove and replace the trustee as the appointor thinks fit (subject of course to any provisions of the trust deed).

Often the trust deed will provide for how that power is to be transferred, such as on the death of the appointor, and allows the appointor to give that power in their Will.

If you have a trust deed and you either:

  • don’t know who holds the power of appointment;
  • want to amend the trust deed to change who holds that power of appointment or
  • want to ensure that the power is appropriately transferred on your death

then speak to your lawyer about this without delay.

FURTHER INFORMATION

Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to trusts, estate planning, business succession or any other commercial law matter, contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au.

Company power of attorney

What would happen to your company if its sole director became incapacitated or died? How would bills and staff get paid? Who would make decisions on behalf of the business?

Companies may only act through its directors so in the case of a sole director company, the company will be unable to operate if something happened to its director.

personal power of attorney granted by a director is not valid where it seeks to allow someone to act in the role of a director of a company as the position of a director is a personal duty that cannot be delegated. Only the shareholders of a sole director company can appoint a replacement, even if it is only temporary.

A personal held by a shareholder may be able to call a meeting of shareholders so as to seek to appoint a replacement director, but this all takes time.

Each company that has a single director should appoint its own attorney as part of its overall risk management strategy.

The Corporations Act grants to a company all the powers and authority of a ‘natural person’ and as such, a company can appoint an attorney under a company power of attorney to act on its behalf when the company itself is not able to act (such as through the incapacity or ill heath of its sole director) and this attorney can continue to act even if the sole director died.

FURTHER INFORMATION

Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to corporations, commercial law or business related matters, contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au.

This information is general only and is not a substitute for proper legal advice. Please contact McKillop Legal to discuss your legal concerns or objectives.

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Employment Contracts

Are the Employment Contracts used by your business up to date?

Employees are arguably the most important asset of your business. They are also potentially one of the most risky.

Employees have contact with customers, form relationships with them, suppliers and referrers, have access to all of your other business assets such as databases, intellectual property and trade secrets.

When an employee leaves your organisation, there is potential for them to take more then their personal belongings with them when they go.

Employees are arguably the most important asset of your business. They are also potentially one of the most risky

For these reasons having a robust, yet commercial and flexible, employment agreement is essential.

What should your employment contract include?

At the very least, a contract of employment should include:

  • Position, duties and responsibilities (including whether full time, part time or casual)
  • Hours
  • Probation (for new employees or roles)
  • Remuneration and other benefits (including superannuation)
  • Leave entitlements (as well as obligations such as notice, reporting etc)
  • Confidentiality
  • Intellectual property ownership
  • Consenting to reasonable surveillance in the workplace
  • Obligation to comply with Workplace Policies including those relating to anti-discrimination and bullying, email and internet use and the like
  • Termination (including notice provisions that comply with the National Employment Standards)
  • Obligations on termination (such as returning property) and those that continue after termination (including appropriate and enforceable Restraints of Trade)
  • A copy of the Fair Work Information Statement

FURTHER INFORMATION

Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to any employment related issue or any business/commercial law matter, contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au

This information is general only and is not a substitute for proper legal advice. Please contact McKillop Legal to discuss your needs.

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ASIC to remove trading names from ABN Lookup

Business owners please note that from November 2018, trading names will be removed from the ABN Lookup facility.

The ABN Lookup contains a list of all Australian Business Numbers (ABN) and any associated business names.

If you want to continue to trade under a specific name, if you haven’t already done so, you must register it as a business name with the Australian Securities and Investments Commission (ASIC) as is required by the Business Names Registration Act 2001 (Cth).

You don’t need to register a business name if you trade under your own name (eg ‘John Smith’) or a company name (eg ‘John Smith Pty Ltd’), but you do need to have a business name if it’s anything else (eg ‘John Smith Plumbing’, ‘John Smith & Co’, ‘John Smith & Partners’, ‘John Smith & Sons’  or ‘John Smith & Associates’ then it must be registered).

Don’t rely on a business name registration thinking that it gives you any protection – as it doesn’t give you any protection at all – only a trade mark under the Trade Marks Act 1995 (Cth) can provide that kind of protection.

FURTHER INFORMATION

Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to intellectual property, commercial law or business related matters, contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au.

This information is general only and is not a substitute for proper legal advice. Please contact McKillop Legal to discuss your legal concerns or objectives.

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Director duties

There are numerous and important legal responsibilities imposed on directors of companies under the Corporations Act 2001 and other laws, including the general law.

Of these director duties, some of the most significant are contained in Chapter 2D of the Corporations Act:

  • to exercise the degree of care and diligence that a reasonable person might be expected to show in the role – the business judgment rule (s.180).
  • to act in good faith in the best interests of the company and for a proper purpose (s.181)
  • to not improperly use their position to gain an advantage for themselves or someone else, or to the detriment to the company (s.182)
  • to not improperly use the information they gain in the course of their director duties to gain an advantage for themselves or someone else, or to the detriment to the company (s.183)
  • to lodge information with ASIC (s.188)

but there are others, including to:

  • to avoid conflicts of interest between the interests of the company and theirpersonal interests and to reveal and manage conflicts if they arise (s.191)
  • to take reasonable steps to ensure that a company complies with its obligations in the Corporations Act related to the keeping of financial records and financial reporting (s.344)
  • to ensure that a company does not trade whilst insolvent or where they suspect it might be insolvent (eg, if it is unable to pay its debts as and when they fall due) (s.588G)
  • if the company is being wound up, to assist the liquidator and provide accurate details of the company’s affairs.

Directors can also be liable for unpaid taxation obligations and unpaid superannuation monies – for which the ATO can issue Director Penalty Notices.

Failing to comply with director duties can result in criminal sanctions, fines, disqualification from acting as a director and other consequences, such as breach of contract such as obligations under a Directors & Shareholders Agreement.

People can be responsible as directors even if not formally appointed

What many people don’t know is that the term “director” is defined in section 9 of the Corporations Act to include a person:

  • who is appointed as a director (or alternate director), regardless of the name given to their position; and
  • even though not validly appointed and recorded at ASIC as a director:
    • who acts in the position of a director (also known as a ‘de facto director‘); or
    • whose instructions or wishes the appointed directors are accustomed to act in accordance with (also known as a ‘shadow director’)

Commonly used terms for the titles of ‘director’ include ‘non-executive director‘, ‘executive director‘, ‘managing director‘, ‘independent director‘ and ‘nominee director‘.

Often, businesses give titles to employees rather than pay rises. Similar considerations apply to partnerships, where some partners are ‘salaried partners‘, not ‘equity partners‘ so they take home a salary rather then enjoy the fruits of the business. What these ‘salaried partners‘ (in the same vein as ‘non-executive directors‘) often fail to understand or appreciate is that they are holding themselves out as directors or partners of the business and will have full responsibility as such if something goes wrong, such as an insolvency.

How to meet the responsibilities

Those with key roles in any business, regardless of its legal form, you should:

  • understand your legal obligations and make compliance with them part of your business
  • keep informed about your business’ financial position and performance, ensuring that it can pay its debts on time and keeps proper financial records
  • give the interests of the business, its stakeholders/owners and its creditors top priority, which includes acting in the business’ best interests (even if this may not be in your own interests)
  • use information you get through your position properly and in the best interests of the business
  • get professional advice or more information if you are in doubt.

FURTHER INFORMATION

Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to Corporations Act or corporate governance issues or any business or commercial law matter, contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au

This information is general only and is not a substitute for proper legal advice. Please contact McKillop Legal to discuss your needs.

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What is a Granny Flat Right?

WHAT IS A GRANNY FLAT RIGHT?

You can have a granny flat interest in any kind of dwelling, not just those typically referred to as a “granny flat” (a separate, self-contained building or living area attached to a home or property). It must be a private residence and your principal home.

You cannot however, have a granny flat interest in a property in which you have legal ownership (or your partner or a company or trust that you control).

A “granny flat right” or a “granny flat interest” is where you pay for the right to live in a specific home for life.

Granny flat interests are usually family arrangements providing company and support for older people, but they don’t have to be for social security purposes. They are created when you exchange assets, money or both for a right to live in someone else’s property for life. For example, you could:

  • transfer ownership of your home but keep a lifelong right to live there or in another private property; or
  • transfer assets, including money, in return for a lifelong right to live in a home.

The granny flat right only lasts for your lifetime. It’s not part of your estate when you die, so you can’t give it in your will as part of your estate plan.

DOCUMENTATION

A granny flat right does not have to be in writing however, given that amounts that can be paid for a granny flat right can be significant and they are usually funded by significant events like the sale of a family home, it can be a very good idea to get a lawyer to draw up a legal document so you have proof of what you and the owner have agreed to in relation to the granny flat arrangement.

A Granny Flat Right Agreement can include many things in addition to the amount paid, such as what happens if the property is sold, whether the right can be transferred to another property or what you may get back if you give up your granny flat right, as well as what regular contributions for rent, maintenance or outgoings (insurance, rates, phone etc) may have been agreed.

GIFTING RULES & THE REASONABLENESS TEST

In Centrelink/Department of Human Services terms, a “deprived asset”, also known as “gifting”, is where you give away an asset without getting something of at least equal value in return.

The value of a granny flat right is the amount paid, or the value of the assets transferred, in return for a life interest or life estate in a property.

Centrelink may apply the “reasonableness test” in determining the amount that should be paid for a granny flat right. This test is based on a formula based on a conversation factor relating to your age next birthday and the couple age pension rate.

If the amount paid is equal to or below the value determined by the reasonableness test, then there is no deprivation. However, if the amount you paid for the granny flat right is more than the cost or value of the granny flat right, the excess amount paid is considered to be a “deprived asset”.

This could affect the amount of pension you are paid.

Depending on the value of the granny flat right, you may be considered as a home owner for Centrelink (assets test) assessment purposes, even though you don’t own the home you have the granny flat right in.

WANT MORE INFORMATION?

Speak to us about how we can assist you to draft a Granny Flat Right Agreement to document your arrangements regarding the use and occupation of part of your home. We will liaise with your financial planner to cover off the financial and social security aspects as there may be other things you can do like contribute proceeds of sale to super.

Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to documenting co-habitation and property use agreements and estate planning matters generally, contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au.

This information is general only and is not a substitute for proper legal advice. Please contact McKillop Legal to discuss your needs.

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Country of origin food labelling

From 1 July 2018, most of the foods you buy will need to display new country of origin labels. This is required to comply with the Country of Origin Food Labelling Information Standard 2016.

Different labelling requirements apply depending on:

  • whether the food is grown, produced, made or packed in Australia or another country
  • whether the food is a ‘priority’ or ‘non-priority’ food
  • how the food is displayed for sale

“It is illegal for a business to make a claim that goods were grown, produced, made or packed in a particular country when this was not the case.”

You will find country of origin labelling on most food you buy at the supermarket, local stores, markets, online or from a vending machine.

Food bought from restaurants, cafes, take-away shops, schools and caterers hwoever does not have to be labelled.

Food that was packaged and labelled on or before 30 June 2018 can still be sold without the new labels so there will be a transition period.

Types of food covered by the Standard

The Standard applies to most food offered for retail sale in Australia (e.g. food sold to the public in stores or markets, online or from vending machines) if it is:

  • in a package or
  • unpackaged seafood, particular meats, fruit and vegetables, nuts, spices, herbs, fungi, legumes, seeds or a mix of these foods.

The Standard does not apply to food that is:

  • otherwise unpackaged (e.g. unpackaged cheese, pastries or sandwiches)
  • only intended for export to overseas markets
  • sold by restaurants, canteens, schools, caterers, self-catering institutions, prisons, hospitals, medical institutions and at fund-raising events (e.g. a cake stall at a school fete)
  • made and packaged on the same premises where it is sold (e.g. bread in a bakery)
  • delivered and packaged ready for consumption, as ordered by the consumer (e.g. home delivered pizza)
  • for special medical purposes
  • not for human consumption (e.g. pet food).

Grown in, produced in, made in or packed in?

The key country of origin claims mean different things:

  • “Grown in” is a claim about where the ingredients come from and is commonly used for fresh food. It can also be used for multi-ingredient products to show where the food was grown and processed
  • “Produced in” is a claim about where the ingredients come from and where processing has occurred. This claim is often used for processed, as well as fresh foods
  • “Made in” is a claim about the manufacturing process involved in making the food

When a food has not been grown, produced or made in a single country, it will need to display a label identifying the country it was “packed in”.

It is illegal for a business to make a claim that goods were grown, produced, made or packed in a particular country when this was not the case.

Priority and non-priority goods

“Non-priority foods” must carry a country of origin statement about where the food was grown, produced, made or packed.

A product is a non-priority food if it belongs to one of the following 7 categories:

  • seasoning (e.g. salt, spices and herbs)
  • confectionery (e.g. chocolate, lollies, ice cream, popcorn)
  • tea and coffee (in dry, or ready to drink, form)
  • biscuits and snack food (e.g. chips, crackers and ready to eat savoury snacks)
  • bottled water
  • soft drinks and sports drinks
  • alcohol

Everything else is a “priority food”. For example, priority foods include fruit, vegetables, meat, seafood, bread, milk, juice, sauces, honey, nuts and cereal.

Priority foods can only claim to be “produced” or ”grown” in Australia if they contain 100% Australian ingredients.

If a priority food was grown, produced or made in Australia, its country of origin label will also feature:

  • a kangaroo in a triangle logo to help you quickly identify that the food is Australian in origin;
  • a bar chart and text identifying the proportion of Australian content in the food (if any).

Businesses may voluntarily choose to provide country of origin information for food that is exempt from the Standard, provided it is not false or misleading.

However, if a business wishes to use the kangaroo logo or the bar chart on food products to be sold in Australia, they will be required to comply with the Standard regarding the use of those graphics.

Labels

The Standard sets out 3 possible country of origin labels for food, each with its own mandatory text requirements:

Three component standard mark – a graphic and text-based label which is mandatory for priority food items grown, produced or made in Australia. The label includes:

  • the kangaroo in a triangle symbol so you can easily and quickly identify the food’s Australian origin
  • the minimum proportion, by ingoing weight, of Australian ingredients, indicated by a percentage amount and shown in a bar chart
  • a statement indicating what percentage of the food was grown or produced in Australia
Three component label

 

Two component standard mark – a graphic and text-based label which is mandatory for most priority food items packed in Australia. It may also be used for imported priority foods that contain Australian ingredients. The label includes:

  • the minimum proportion, by ingoing weight, of Australian ingredients, indicated by a percentage amount and shown in a bar chart
  • a statement indicating what percentage of the food was grown or produced in Australia
The bar chart indicates what percentage of the product is Australian made, and the explanatory text spells this out in simple terms.

 

Country of origin statement – a text-only label which is used for non-priority food items. Imported priority foods must also, as a minimum, carry a country of origin statement in a clearly defined box. 
The country of origin statement indicates where the product was made

Other claims

Sometimes businesses add words, or easily recognisable logos, symbols or pictures to their food packaging, which could suggest or imply a connection between the product and a particular country. For example, a statement such as ‘Proudly Australian owned’ next to an Australian flag tells you about the ownership of the company.

Businesses must ensure that any such representations made about their products are clear, truthful and accurate.

FURTHER INFORMATION

Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to consumer rights, business or commercial law matter, contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au

This information is general only and is not a substitute for proper legal advice. Please contact McKillop Legal to discuss your needs.

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SMSF owns property. Member dies. Oh oh!

Do you, like many Australians, have a self managed superannuation fund (SMSF)?

If you want to own direct investments within your superannuation or have greater control of your superannuation portfolio, a SMSF can be a suitable alternative to retail superannuation funds.

SOME ADVANTAGES OF SMSFs

SMSFs have:

  • direct investment choice
  • access to wholesale managed funds
  • the benefit of being able to combine the superannuation balances of up to 4 people
  • the advantage of 15% taxation on investment earnings (as opposed to marginal or company tax rates) and potentially reduced capital gains tax
  • the ability to assist with estate planning and possibly for non-lapsing binding death benefit nominations

DIRECT PROPERTY

Often seen as a key advantage is the ability of an SMSF to invest in direct property, such as owning office or factory space from which a business operates from (assuming your SMSF’s Investment Strategy allows for direct property).

Where member balances are insufficient to buy a property outright, SMSFs can also borrow but only using a limited recourse borrowing arrangement (LRBA) using a bare trustee that holds the property on behalf of the SMSF for the duration of the loan and once the debt is paid, the legal ownership of the property passes to the SMSF.

Property values hopefully go up over the next 20 or so years and the members benefit from and can live happily off the benefits during retirement …

… well that’s the plan anyway. So, what happens if a member dies or gets really sick a few years into the plan? (hint – it can ruin everything, for the other members).

CONSEQUENCES OF DEATH OR TPD

On the death of a member, that member’s superannuation balance is to be paid out (to the member’s estate of their nominated beneficiary/ies) as soon as is practicable.

On the total and permanent disablement (TPD) of a member, the member may be able to exit from the SMSF and call for their member balance to be paid out.

… but if the SMSF’s cash is all tied up in the property and the property is still subject to the LRBA, where does the money come from to pay out the member balance?

The property may have to be sold to fund this! That is, unless there is a SMSF Member Death & TPD Exit Deed in place.

SMSF MEMBER DEATH & TPD EXIT DEED

A SMSF Member Death & TPD Exit Deed can help in reducing the financial effects arising from the unexpected death or TPD of a member by for example:

  • requiring the SMSF members to effect a life insurance policy over the lives of the other members and where there is a death and a payout under the policy, the policy owners contribute funds to the SMSF with the intention of paying out the deceased member’s superannuation balance (and using any remainder to reduce or pay out any debt on the property under the LRBA); and
  • requiring the SMSF members to either put in place appropriate TPD cover or to agree that on the occurrence of a TPD event of a member, that member may remain a passive investor in the SMSF but cannot immediately call for payment of their member balance, even if they would otherwise be entitled to under the superannuation legislation, but rather, if they want the payment, their member balance is to be paid out over several years (ie, from the SMSF’s cashflow).

Unless there are appropriate insurances in place or an agreement for members to only get paid out benefits over time in the event of a TPD event, then the likely outcome of the death or TPD of one member is the sale of the SMSF’s property.

This can be a particularly bad problem if the SMSF has only recently acquired the property and had therefore incurred all of the legal, financial planning and accounting costs as well as stamp duty, but had no time for the asset to generate income or appreciate in value. The death or TPD of the one member therefore affects up to 3 other members who may not even be related to the affected member!

FURTHER INFORMATION

Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to estate planning, business succession, superannuation or SMSFs, contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au.

This information is general only and is not a substitute for proper legal advice. Please contact McKillop Legal to discuss your needs.

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SMSF owns property. Member dies. Oh oh!

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