What to know before you buy a business!

When you buy a business, you are often doing much more than purchasing some business stock or equipment. You are placing yourself in the heart of a complicated network of business and legal relationships with customers, employees, suppliers, and many more.

Buying a business means not just transferring business assets, but ensuring that you are buying what you believe is required to continue the running of the business. This means that a comprehensive due diligence process is an absolute must before you commit to anything.

Some of the considerations to take into account in any purchase of a business include:

If you are buying a business, it is very important to only do so with quality professional advice from both your lawyer and your accountant. Elringtons’ Commercial Law team have assisted in the purchase of countless businesses ranging from small family-owned businesses right up to large commercial enterprises in both the ACT and NSW. Different complications and considerations arise apply to the various types of businesses. We can help guide you through this complicated legal process.

You may also be interested in our article – What to know before you sell a business.

For more information or to make an appointment in either our Canberra or Queanbeyan office please do not hesitate to contact Shalini Sree or Mitchell Evelyn:

+61 2 6206 1300 | e: info@elringtons.com.au

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What you need to know about selling your business!

Selling a business can be a very complicated affair. You are doing much more than simply selling an asset – you could be severing or transferring a multitude of contracts to the buyer, transferring both tangible property (for instance, stock or equipment) and intangible property (such as Intellectual Property, goodwill, or even social media accounts), and extricating yourself from the complex network of promises, personal guarantees, and personal business relationships.

Selling a business – and doing it properly – involves taking each of the small components which together make your business run, and transferring them to someone new. Most of these will not follow the business automatically. Some of the most common considerations which need to be taken into account in any sale of business are listed below:

You may also be interested in our article – What to know before you buy a business.

For more information or to make an appointment in either our Canberra or Queanbeyan office please do not hesitate to contact Shalini Sree or Mitchell Evelyn:

+61 2 6206 1300 | e: info@elringtons.com.au

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Trusts and Increased Taxes in NSW

by Rod AnthesRod Anthes

“You might be Australian but is your Trust a deemed foreign person?”

– If it is you may have to pay a lot more state tax than you thought.

Potentially, a foreign person is liable for double stamp duty at the time of purchase.  In addition, the foreign person is then liable for much more land tax for each year that they own the property.  There is no threshold value applied when the tax is calculated so it becomes higher than usual from the start.  But then there is also a surcharge payable annually.  This fluctuates but at the moment if a foreign owner owns residential property worth $1mil the current land tax bill is $36,000 per annum.  A non- foreign owner (where it is not principal residence) would be liable for $6,500 per annum.

So who is a foreign person?

The definition of ‘foreign person’ is such that if any actual or potential beneficiary of a trust is a foreign person then the trust is deemed to be a foreign person!

If that trust owns property, land tax ($36,000 p.a. on a property worth $1mil) becomes payable each year.

You may be familiar with the wording in trusts which provides for almost everybody ever in a person’s family to be a potential beneficiary-even if they are not yet born.  A person is foreign if they are not:

  • an Australian or New Zealand citizen;
  • a permanent-resident;
  • on a permanent (Spouse) Visa AND having spent more than 200 of 365 days overseas in the last 12 months.

This means that if one of the actual or potential beneficiaries marries or partners with a foreign person then the extra taxes are payable.  For example; this may be a marriage by one of your grandchildren to a foreign person!  Possibly even more remote.

Risks if foreign companies are beneficiaries

If a trust deed permits another trust or company to be a potential beneficiary, where that other trust or company is a foreign person under these rules then the trust also becomes foreign. Also if another company or trust (even if it is an unrelated third party) owns shares in a corporate beneficiary, then that corporate beneficiary could become a foreign person and then by extension the trust could again be considered a foreign person.

 It doesn’t take much for a company to be considered “foreign”.  Under these rules – 20% or more share ownership by one foreign shareholder, or a combined 40% or more ownership by multiple shareholders is sufficient to render a company a foreign person – and that is sufficient to render a discretionary trust to be a foreign person.

Of course if the trust is deemed to be foreign then the extra (double) stamp duty would also be payable when buying property.

The possibilities are very real and the consequences very expensive.

What can you do?

The risk can be overcome by a variation of the trust deed to exclude the possibility of a foreign person (as defined in the legislation) from ever being eligible to be a beneficiary of the trust.

If you think you need to vary your trust deed, get in touch with us.  We will assess your situation and make a recommendation free of charge.  If we advise that a variation to the trust deed is necessary, we will give you a clear indication of what it will cost before you are obligated.

p: +61 2 62061300   | e: ranthes@elringtons.com.au

How much do Retirement Villages really cost?

By Mitchell Evelyn

Retirement Villages have recently received a lot of recent negative media attention following a recent joint investigation by Four Corners and Fairfax, who have criticised some agreements as heavily favouring the villages, encouraging a “churn” of residents, and incorporating massive exit fees. This is not to say that Retirement Villages should be avoided, or that they are all bad. However, like any other large financial transaction, it is very important that you read and understand the agreement very carefully, and seek the advice of a qualified legal professional before committing to anything.

What are you buying?

It is important to understand exactly what you are buying, as this will have a significant effect on what happens when you vacate your unit. Depending on the Village, you may actually be buying the unit you reside in, otherwise you may simply be buying a long term lease or licence to occupy.

How much is this really costing me (or my children?)

The Retirement Village industry is unique, in that it makes a very large proportion of its profit not by providing you with a service or selling you a unit, but through fees charged when you leave. These fees (called exit fees or departure fees) are a large, one-time fee paid in addition to other costs you might pay while living in the Village. They may be deducted from a substantial Accommodation Bond you paid upon entering the village, which are often financed by selling your primary home. This bond (less any fees) is generally repaid either to you (or, if you have died, your Estate) when moving out of the Village.

These fees are determined both by the contents of the Residency Agreement, and the Retirement Villages Legislation in your state or territory. Generally, an exit fee is calculated as a fixed percentage of your initial contribution per year that you reside in the Village. Depending on this amount and the length of your stay, an Exit Fee can potentially enter into the hundreds of thousands of dollars.

This fee is payable if you move out of the Village, or if you die, but is probably not the only fee you (or your Estate) needs to pay. Each provider has its own Agreement, and may put in place different fee arrangements. These can include:

  • Monthly service charges to maintain the Village facilities
  • Maintenance fees
  • Refurbishment and cleaning fees (upon vacating the unit)
  • Marketing fees (to find a new resident for your unit after you have vacated or died)
  • The Village Operator’s legal costs of preparing your Residency Agreement

When will my bond be repaid?

Your Accommodation Bond is often not refundable until a new resident is found to take your unit. In the meantime, any other fees may continue to be charged and may be deducted from your Accommodation Bond when the unit is eventually sold. If you have lived in the Unit for a very long time, and the unit is also on the market for a very long time, the majority of your Bond could be consumed in fees.

What about the Capital Gain on the unit?

If your unit is eventually resold at a higher price than when you bought it, it is very important to pay attention to who can claim the Capital Gain on the unit. It may not necessarily all go to you (or your Estate).

What will my lawyer do?

elringtons have expertise in reviewing and advising on Retirement Village Agreements. Having operated in the ACT and NSW region for more than a century, we are familiar with most of the standard agreements offered by the local retirement villages in the region and are able to provide comprehensive advice on their operation, as well as guide the matter to settlement on your behalf.

We encourage clients to take a holistic approach to their affairs when preparing to transition into a retirement village. We offer services in a broad range of legal areas, and are also able to assist you in the sale of your current residence, as well as review your Will, Power of Attorney, and Guardianship documents.

Appointing an Enduring Guardian and Enduring Power of Attorney
When should I change my will?
What happens if I exclude someone from my will?

For more information or if you wish to make an appointment to discuss your queries, please contact our Property and Commercial team:

p: 6206 1300| e:  info@elringtons.com.au

Development Management Agreements: a win-win for everybody

Do you currently have a substantial portion of your family’s wealth tied up in real property assets that are not generating the income that you had once hoped?

Are you looking to boost your superannuation or cash flow position leading into retirement?

It is becoming increasingly common for owners of substantial rural or semi-rural land parcels, particularly on the fringes of high priced capital cities, to be entering into development arrangements with experienced and well-resourced developers in order to subdivide and on sell rural land parcels in a cost effective and timely manner that would not have been possible if the landowner were to undertake the project themselves.

This type of arrangement is becoming particularly popular in metropolitan centres where “urban sprawl” is rife, and young first homebuyers are being forced to the more affordable outer suburbs of cities in order to secure their first homes.

The benefits of a Development Management Agreement (DMA) mean that landowners who have little to no property development experience, and also have minimal working capital available to cover the upfront costs of undertaking such a development, can outsource these responsibilities to a party who has both the financial resources to undertake the initial stages of the development, and also has the experience of working closely with local councils, planners, surveyors and marketing agents in order to speedily develop the land and bring it to market

The results? The landowner is able to develop their previously stagnating asset without investing significant upfront costs and time into the project, while the developer is able to use their financial resources, skill set and professional network to develop a parcel of land which they are not fortunate enough to own themselves. The outcomes therefore of a well drafted DMA mean that both parties are able to pool their resources together in order to bring about a mutually beneficial arrangement for both parties to the agreement.

If it sounds like this type of commercial arrangement would suit your circumstances, please contact our office to make an appointment with one of our experienced property and commercial lawyers to discuss your options. Our lawyers have extensive experience working alongside both landowners and developers in achieving cost effective and timely results for both parties to a Development Management Agreement.

Contact Jacob Powell

p: +61 2 6206 1300 | e: jpowell@elringtons.com.au