APRIL 2005
TRUSTS
WHY HAVE A TRUST?
Many people use trusts for taxation planning purposes, asset protection and
estate planning. Since the decision of Hanel v O’Neill trusts should not be
used as trading entities. [i.e. you should not run a business through a trust see below].
ADVANTAGES OF USING A TRUST

Ownership of property in a trust allows for capital gains tax-splitting which
is of benefit to low taxed individual beneficiaries.

Trust income can be distributed to low taxed beneficiaries. Once the
individual beneficiary’s income tax rate is above 30% the trust income can
be distributed to a corporate beneficiary and quarantined there at that
rate of tax.

Trusts with corporate trustees never die, they continue and new
beneficiaries can be added subject to trust resettlement rules.
THE STRUCTURE
To maximise the benefits of using a corporate trustee the following structure
can be used:
1.
An operating company is established in which there are two classes of
shares issued. This company carries on the business. The first class of
shares are voting shares with no rights to dividends. These shares are
allotted to the person or persons whom you want to control the
operating company.
2.
The second class of shares are non-voting dividend shares. This second
class of shares is allotted to a trust, the trustee of which is a company.
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The beneficiaries of the trust are individual beneficiaries and a corporate
beneficiary.
3.
Provided company tax is paid by the operating company, it can declare
fully franked dividends to the trust. The trustee in turn distributes these
fully franked dividends to individual beneficiaries who receive fully
franked dividends on which the tax has already been paid (up to 30
cents in the dollar). When there are no individual beneficiaries that are
paying less than 30 cents in the dollar, the income can then be
distributed to a corporate beneficiary and quarantined at 30 cents in the
dollar tax (i.e. with franking credits no more tax is paid until paid out to
shareholders as dividends).
4.
If there has been capital distributions from the sale of shares then
individual beneficiaries (as distinct from corporate beneficiaries) may
receive a capital gains concession if the capital profit is distributed to
them.
CORPORATE NEWS:
Former HIH Director, Rodney Adler Jailed
For his role in Australia’s largest corporate collapse in March 2001, Rodney
Adler has received a maximum sentence of 4½ years jail. Mr Adler pleaded
guilty to 4 dishonesty offences committed whilst director of insurer, HIH.
Justice Dunford of the NSW Supreme Court sentenced Mr Adler to a minimum
2½ years full time custodial sentence. Each of the 4 charges carried a
maximum 5 years full time custodial sentence.
When handing down the sentence Justice Dunford said that Mr Adler’s
offences were “deliberate lies, criminal and in breach of his fiduciary duties as
a director.” Further, his Honour held that the offences were “serious and
display an appalling lack of commercial morality.”
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UNFAIR DISMISSAL REPORT
Constructive Dismissal – Reduction in Pay
In the recent decision of Qian v Daum Consulting and Professional Pty Limited
[2005] NSWIRComm 1043 (“Qian’s case”), Commissioner Murphy held that
a unilateral reduction in an employee’s pay by an employer constituted
constructive dismissal.
The employee, Mr Qian was employed as a business trading and marketing
consultant by Duam Consulting and Professional Pty Limited (“Daum”). After
11 months of employment with the employer, Daum decided to unilaterally
vary Mr Qian’s contract of employment by offering Mr Qian a new contract
that reduced his income by 50%. In response, Daum alleged that Mr Qian
abandoned his employment and said: “You should fire me or else you have to
pay my wages”.
Commissioner Murphy found that Mr Qian did not abandon his employment
and was constructively dismissed following his adverse reaction to being
presented with an adverse salary scheme that would halve his guaranteed
weekly wage.
Mr Qian’s employer was ordered to pay 12 weeks compensation at a rate of
$600.00 per week.
Deductions to Employee’s Pay
In the recent decision of Birchall v Abacus Shade Structures and Abacus Tarps
and Tents [2005] NSWIRComm 1041, Commissioner Murphy decided as a
general rule an employer should not deduct moneys from the proper earning
of employees.
The employee, Mr Birchall was employed full time for 5 months as a General
Hand. He was dismissed by his employer, Abacus Shade Structures and
Abacus Tarps and Tents (“Abacus”) for the reason that he could not be
trusted because did not own up to an error and offer to correct a mistake
made by him when spraying wrong numbers on tarpaulins that were ready for
dispatch to a client of his employer. The employee was not paid for the time
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necessary to correct the error. The employer submitted that there was a
general policy that if a mistake was made by an employee, the employee
would offer restitution.
As to the issue of incompetence, Commissioner Murphy reasoned that
dismissal for one instance of error would have to involve serious and
substantial loss, amounting for instance to willful neglect or even criminal
negligence.
As to the ongoing and so called “agreed” policy to allow deductions from
employees pay, Commissioner Murphy held that this policy should cease
immediately. As a general rule, an employer may not deduct moneys from the
proper earnings of employees.
Commissioner Murphy held that the employee was harshly, unjustly and
unreasonably dismissed for one of the worst reasons. He was dismissed when
he gave advice to his employer that it could not deduct his pay for the time
involved, upon advice from the Department of Industrial Relations.
The employee was awarded 20 weeks payment at the rate of $380 per week.
How can an Employer Recover Overpayments made to Employees?
As a general rule, an employer is prohibited from making deductions from an
employee’s wages or termination pay without specific authority from the
employee. To prevent any confusion between the employer and the
employee, this authority should be in writing and signed and dated by the
employee.
However, there may be a provision in the applicable award or agreement that
allows certain deductions to be made. Alternatively, there may be a condition
in the contract of employment that provides for the employer to make
deductions from monies due to an employee under reasonable circumstances.
Contributions made by Greg Judd, Freya Jenkins, Annabel Murray, Ellen
Sefton and Antonio Chan.
This newsletter is provided by Judd Commercial Lawyers to guide and assist its clients and other correspondents
for their information on a complimentary basis. It represents a brief summary of the law as of April 2005 and
should not be relied on as a definitive, complete or conclusive statement of the relevant laws at any time.
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