Private client law in Australia: overview

A Q&A guide to private client law in Australia.

The Q&A gives a high level overview of tax; tax residence; inheritance tax; buying property; wills and estate management; succession regimes; intestacy; trusts; charities; co-ownership; familial relationships; minority and capacity, and proposals for reform.

To compare answers across multiple jurisdictions, visit the Private client Country Q&A tool.

The Q&A is part of the multi-jurisdictional guide to private client law. For a full list of jurisdictional Q&As visit www.practicallaw.com/privateclient-mjg.

William Thompson, Gary Lanham and Sally Newman, Minter Ellison Lawyers
Contents

Taxation

Tax year and payment dates

1. When does the official tax year start and finish in your jurisdiction and what are the tax payment dates/deadlines?

The Australian tax year generally runs from 1 July to 30 June.

As a rule, income tax returns for individuals, partnerships, trusts and companies are due on or before 31 October. Penalties (possibly including prosecution) apply for late lodgement. Lodgement times may be extended in certain circumstances, including if a tax agent prepares and lodges the return.

Tax must generally be paid:

  • For individuals, within 21 days after the tax return is assessed (tax on employment income is generally withheld by the employer during the year and a credit given on assessment).

  • For companies, on the first day of the sixth month after the end of the tax year.

Late payment usually leads to interest charges. An extension of time for payment or payment by instalments may be available in certain circumstances.

Trusts and partnerships are flow-through vehicles and, although required to lodge income tax returns, generally do not pay tax on their own account (with some exceptions for trusts, for example where no beneficiary is presently entitled to trust income and for public trading trusts taxable as companies).

Domicile and residence

2. What concepts determine tax liability in your jurisdiction (for example, domicile and residence)? In what context(s) are they relevant and how do they impact on a taxpayer?

Tax liability is determined according to the principles of "residency" and "source", subject to any applicable double tax agreement (DTA) (see Question 14). Generally, Australian tax residents pay tax on worldwide income and capital gains. However, this general rule applies subject to:

  • Any applicable DTA.

  • Certain exemptions, for example, for foreign source personal services income derived by government employees in some circumstances.

  • "Foreign income tax offset" which is ordinarily available to Australian residents at an amount equal to the amount of foreign income tax paid.

Foreign tax residents pay Australian tax only on income derived directly or indirectly from Australian sources and only on capital gains from taxable Australian property (see Question 5). Special rules apply for temporary tax residents (see Question 4).

Australia also has an anti-deferral regime which can impose tax on an Australian resident on all or part of the income of a foreign resident entity that is a foreign transferor trust or a controlled foreign company (see Question 13).

Residence

Tax residence is determined on a year-by-year basis. Tax residence is determined differently for individuals, companies and trusts.

Individuals

An individual will only be an Australian tax resident if the person:

  • Resides in Australia according to ordinary concepts under the common law.

  • Has an Australian domicile (of origin, choice or dependency), unless the person has a permanent place of abode outside Australia.

  • Has been in Australia for more than 183 days during an income year (unless the person's usual place of abode is outside Australia and the person does not intend to take up residence in Australia).

  • Is a member of certain Australian Commonwealth superannuation (pension) schemes, or is a spouse or child of such a person.

Generally, citizenship or visa status does not determine residence for tax purposes.

Companies

A company will be an Australian tax resident if either it is:

  • Incorporated in Australia.

  • Not incorporated in Australia, but carries on a business in Australia and either:

    • its central management and control is in Australia; or

    • its voting power is controlled by Australian-resident shareholders.

Trusts

A trust will generally be an Australian tax resident if either:

  • A trustee of the trust was a resident at any time during the tax year.

  • The central management and control of the trust was in Australia at any time during the tax year.

Special residency rules apply for capital gains tax (CGT) purposes in the case of a unit trust.

Source

Generally, income is sourced as follows (subject to any applicable DTA):

  • Employment income. Where the services are performed.

  • Business profits. Where the contract is performed (other factors may include the place of contract formation or payment).

  • Interest. Where the loan contract is negotiated and made.

  • Dividends. Where the company's profits allowing the dividend were made (company's residence is relevant).

  • Royalties. Australia, if the royalty payment flows from Australia, otherwise, where the know-how is located.

  • Rental income. For real property, where it is located. For goods, factors include where the contract is formed and where the goods are used.

Taxation on exit

3. Does your jurisdiction impose any tax when a person leaves (for example, an exit tax)? Are there any other consequences of leaving (particularly with regard to individuals domiciled in your jurisdiction)?

Australia does not impose an exit tax as such. When an individual, company or trust ceases to be an Australian tax resident, CGT may be payable based on the market value of assets held by the entity (other than taxable Australian property) on the leaving date even if the assets held are not in Australia(see Question 5). Individuals, but not companies or trusts, can elect to defer this CGT in certain circumstances.

Once the entity leaves Australia, any of the entity's taxable Australian property will continue to be subject to the CGT regime. Taxable Australian property broadly includes:

  • Real property in Australia (including certain indirect interests).

  • Business assets which have been used at any time by an Australian permanent establishment of the non-resident (see Question 5)

Temporary residents

4. Does your jurisdiction have any particular tax rules affecting temporary residents?

Only an individual can be a temporary resident and only if:

  • The individual holds a temporary resident visa.

  • The individual's spouse either does not reside in Australia or does not hold Australian citizenship, a permanent residency visa, or one of a number of special category visas.

A temporary resident is generally not taxed in Australia on income derived directly or indirectly from a foreign source (except on income that is remuneration for employment undertaken or services provided).

A temporary resident on whose behalf an employer makes Australian pension (superannuation) contributions may, in some circumstances, apply to the ATO after departing Australia to claim a lump sum payment of the contributions (less any tax applied within the superannuation fund and subject to a one-off withholding tax of up to 45%).

Temporary residents are only taxed on capital gains on taxable Australian property (see Question 5).

Temporary residents may also be entitled to a living-away-from-home allowance in some circumstances (LAFHA). From 1 October 2012, temporary residents are only eligible to receive a LAFHA for a twelve month period and only if the temporary resident at all times maintains a home for their own personal use in Australia that they are living away from for work.

Taxes on the gains and income of foreign nationals

5. How are gains on real estate or other assets owned by a foreign national taxed? What are the relevant tax rates?

Foreign and temporary tax residents are only taxed on capital gains on taxable Australian property, which broadly includes:

  • Real property in Australia (including certain indirect interests).

  • Business assets that have been used at any time by an Australian permanent establishment of the non-resident.

  • An option to acquire either of the above.

CGT is part of Australia's income tax regime. There is no special rate of CGT. Net capital gains are included in the entity's assessable income and taxed at the entity's usual income tax rates subject to any applicable DTA (see Questions 6 and 14).

Some CGT exemptions and concessions may apply to reduce net capital gains. The 50% capital gain discount available to individuals or trusts (not companies) for assets held for at least 12 months before disposal has been abolished for foreign residents for capital gains accrued after 7:30pm (AEST) on 8 May 2012. The discount remains available for capital gains accrued before this time if foreign residents choose to obtain a market valuation of assets as at 8 May 2012.

 
6. How is income received by a foreign national taxed? Is there a withholding tax? What are the income tax rates?

Foreign and temporary tax residents are taxed on income only if it has an Australian source (see Question 2).

Australia's anti-deferral regime may tax an Australia resident on all or part of the income of a controlled foreign company or a transferor trust (see Question 13).

Tax rates

The personal tax rates for both Australian residents and foreign residents from 1 July 2013 to 30 June 2014 are:

  • Taxable income: A$0 to A$18,200. Resident tax rate: 0%. Foreign tax rate: 32.5%.

  • Taxable income: A$18,201 to A$37,000. Resident tax rate: 19%. Foreign tax rate: 32.5%

  • Taxable income: A$37,001 to A$80,000. Resident tax rate: 32.5%. Foreign tax rate: 32.5%.

  • Taxable income: A$80,001 to A$180,000. Resident tax rate: 37%. Foreign tax rate: 37%.

  • Taxable income: A$180,001 and above. Resident tax rate: 45%. Foreign tax rate: 45%.

The company tax rate is currently 30% (regardless of country of residence).

Generally, trusts and partnerships are flow through vehicles and income is taxed in the hands of the individual beneficiaries/partners, rather than taxed in the trust or partnership itself. However, some trusts are taxed as companies.

Withholding tax

Subject to any applicable DTA (see Question 14), Australian residents must withhold income tax from the following payments to foreign residents:

  • Employment income (at the foreign resident rates).

  • Dividends, at 30% of any unfranked portion of the dividend (no dividend withholding tax is payable on any franked portion of the dividend).

  • Interest at 10%.

  • Royalties at 30%.

Certain payments to foreign residents from Australian-managed investment trusts are subject to withholding tax. From 1 July 2012, the rate of withholding is 15% of the amount of the distribution.

Inheritance tax and lifetime gifts

7. What is the basis of the inheritance tax or gift tax regime (or alternative regime if relevant)?

Australia does not have an inheritance tax or gift tax regime at a federal or state level. There are no tax consequences of gifting money but there can be CGT or other tax consequences for gifting other assets. Both inter vivos and testamentary gifts of other assets may have CGT or other tax consequences.

Inter vivos gifts

Inter vivos gifts between related parties, including of a life interest in an asset, may give rise to a capital gain for the giver (based on the market value of the gift).

The giver may claim a deduction for certain gifts made to charitable deductible gift recipients.

Testamentary gifts

Ordinarily, any capital gain on a CGT asset passing to a beneficiary under a deceased estate is disregarded. However, a capital gain may arise where the beneficiary is a foreign resident and the property is not taxable Australian property that will continue to be subject to the CGT regime (see Question 3).

Beneficiaries usually acquire a testamentary gift at the asset's cost base in the hands of the deceased. However, they are taken to acquire the gift at market value where the:

  • Deceased acquired the asset before 20 September 1985.

  • Deceased was a foreign resident (and the asset is not taxable Australian property).

  • Gift was the deceased's main residence (and was not used to produce income).

 
8. What are the inheritance tax or gift tax rates (or alternative rates if relevant)?

Australia has no inheritance or gift tax but a gift of an asset may result in a capital gain for the giver (see Question 7). The net capital gain is included in the giver's assessable income and taxed at the giver's marginal tax rate (see Question 6).

A beneficiary who receives a deceased's main residence as a testamentary gift may generally dispose of the residence within two years of the deceased's death without incurring any capital gain.

A beneficiary of a testamentary gift may take into account the time that the deceased held the subject matter when claiming the 50% capital gains discount (see Question 5). The 50% discount for foreign residents for capital gains accrued after 8 May 2012 has been removed (see Question 5).

All states and territories in Australia allow an exemption from or concession for stamp duty on the transfer of property under a deceased estate.

 
9. Does the inheritance tax or gift tax regime apply to foreign owners of real estate and other assets?

The tax consequences of gifts generally apply to foreign residents (see Questions 7 and 8) However, foreign residents are only taxed on gains on taxable Australian property (see Question 5).

 
10. Are there any other taxes on death or on lifetime gifts?

There are no other taxes on death or on lifetime gifts.

Taxes on buying real estate and other assets

11. Are there any other taxes that a foreign national must consider when buying real estate and other assets in your jurisdiction?

Purchase and gift taxes

Stamp duty is generally payable on the acquisition (by sale or gift) of real property and various other assets, including non-land business assets and shares in landholder companies. The duty rate on a transfer of real property varies from nil to 7% among the states and territories, depending on the value of the property in question.

Annual taxes and rates

The following taxes are generally calculated based on the unimproved value of land (that is, excluding the value of any buildings):

  • Land tax at rates up to 3.7% (depending on the value of the property in question) imposed by each state and territory except the Northern Territory. However, tax free thresholds usually apply and there is generally an exemption for a person's principal place of residence.

  • Land rates payable to the local council (including levies for services such as rubbish collection).

Wealth taxes

Australia does not have a wealth tax.

Other

Goods and services tax (GST) (similar to European VAT) is a broad based consumption tax payable on most supplies of goods or services in Australia at a rate of 10%. Some supplies are exempt from GST (such as financial supplies, exports, food, education or health). Entities can usually claim tax credits for acquisitions or importations of goods or services used in carrying on a business in Australia.

 
12. What tax-advantageous real estate holding structures are available in your jurisdiction for non-resident individuals?

Australia specifically seeks to tax foreign residents on gains made from Australian real property (see Question 5).

From a tax point of view, choosing a structure depends on whether the main purpose of the investment is to derive income or capital gains.

If the main purpose is income, a company may be more appropriate because the company tax rate (30%) is lower than the top marginal personal tax rate (45%). However, a withholding tax at up to 30% applies to any unfranked portion of a dividend paid by a company to a foreign resident (see Question 6).

If the main purpose is capital gains, a trust may be more appropriate because its beneficiaries may benefit from a 50% discount on capital gains (for assets held for more than 12 months) (see Question 5). The 50% discount for foreign residents for capital gains accrued after 8 May 2012 has been removed (see Question 5).

Foreign residents should be aware of Australia's thin capitalisation regime and transfer pricing rules, which may affect the deductibility of interest.

Taxes on overseas real estate and other assets

13. How are residents in your jurisdiction with real estate or other assets overseas taxed?

Generally, Australian residents pay tax on worldwide capital gains.

Real estate or assets located overseas but held by an Australian tax resident are subject to Australia's CGT regime. Net capital gains on overseas real estate or assets held by an Australian tax resident are included in the entity's assessable income and taxed at the entity's usual income tax rate subject to any applicable DTA (see Questions 6 and 14).

Australia also has an anti-deferral regime, which may tax a resident on all or part of the income of the following foreign resident entities:

  • A controlled foreign company (CFC) (broadly, a company controlled by five or fewer Australian residents or a single resident with a 40% or greater control interest). The rules tax Australian shareholders on their share in certain types of income earned by the CFC. However the CFC rules do not apply if:

    • the tainted income ratio of the CFC is less than 5%, that is, less than 5% of the company's gross turnover is derived from either passive income (from dividends or interest), or from tainted sales or services, such as those provided to a related party, an Australian resident or an Australian permanent establishment of a non-resident (subject to certain conditions); or

    • the amount being attributed to the shareholder is taxable Australian property or has been comparably taxed in Canada, France, Germany, Japan, New Zealand, the United Kingdom or the United States.

      The CFC rules also apply to capital gains derived by a CFC. Generally, all non-taxable Australian assets held by the CFC are deemed to have been acquired on the day the entity became a CFC.

  • A transferor trust (where the Australian resident has transferred value to either a unit trust for inadequate consideration or to a discretionary trust). The rules may attribute income derived by the trust to the Australian resident or require a resident beneficiary to pay an interest charge.

The previous regime for taxation of foreign investment funds (FIF) income was a complementary regime to the CFC rules. This was repealed in 2010. It has been proposed these FIF rules be replaced by foreign accumulation fund (FAF) rules (to apply to funds where at least 80% of the entity's assets are debt interests and the entity does not distribute more than 80% of its realised profits and gains). The rules would not apply to superannuation entities and certain life insurance companies, interposed trusts and partnerships. This proposal has not yet been enacted.

International tax treaties

14. Is your jurisdiction a party to many double tax treaties with other jurisdictions?

Australia has signed more than 40 DTAs and 30 Tax Information Exchange Agreements designed to combat offshore tax evasion.

As mentioned in Question 6, Australia's domestic withholding tax rates may be varied by DTA. For example under the:

  • US DTA, tax on dividends is generally withheld at 0% to 15% (but can be as high as 30%) depending on the circumstances; on interest between 0% to 10%; and on royalties at 5%.

  • UK DTA, tax on dividends is generally withheld at 0% to 15%; on interest between 0% to 10%; and on royalties at 5%.

Australia's DTAs may also alter domestic CGT laws. For example, the US and UK DTAs grant US and UK residents respectively exclusive taxing rights over subsequent capital gains where a capital gain was deferred on an individual ceasing to be an Australian resident (see Question 3).

 

Wills and estate administration

Governing law and formalities

15. Is it essential for an owner of assets in your jurisdiction to make a will in your jurisdiction? Does the will have to be governed by the laws of your jurisdiction?

Australia is a federation with government at both federal and state/territory levels. Laws in relation to wills and the administration of estates are within the legislative competence of the Australian states and territories. While there are eight different jurisdictions in Australia (six states and two territories), there is a substantial degree of uniformity from one state or territory to another.

It is not essential for a foreign owner of assets in any of the Australian states or territories to make a will in that state or territory. A will made in another place may be sufficient to deal with any assets of a foreign person in any Australian state or territory (see Question 18).

 
16. What are the formalities for making a will in your jurisdiction? Do they vary depending on the nationality, residence and/or domicile of the testator?

Two scenarios should be considered in relation to will-making formalities:

  • Will has no foreign connection. A will has no foreign connection if:

    • it is not made outside Australia; and

    • the will maker was not a foreign national or was not domiciled or did not habitually reside outside Australia.

    In this case, the most straightforward procedure for satisfying formalities is that:

    • the will is in writing; and

    • it is signed by the will maker in the presence of two witnesses who also sign as witnesses.

    If a will does not comply with these formalities, Australian state/territory courts have jurisdiction to declare it valid. However, this order must generally be made by a judge, which means greater delay and expense.

  • Will has a foreign connection. A will has a foreign connection if it was made:

    • outside Australia; or

    • by a person who was a foreign national or whose domicile or habitual residence was outside Australia.

    Australian courts have jurisdiction to declare the will valid, not because of the jurisdiction to overlook formalities, but rather in accordance with their power to apply the Australian adaptation of the conclusions reached at the ninth session of the Hague Conference on Private International Law (the convention concluded on 5 October 1961, on the Conflict of Laws Relating to the Form of Testamentary Dispositions).

Redirecting entitlements

17. What rules apply if beneficiaries redirect their entitlements?

Redirecting entitlements is not a common strategy in Australia because it usually activates a revenue consequence (either state/territory based stamp duty because of change of ownership (see Question 11), or federal CGT (see Question 5). Any redirection usually occurs by:

  • Settling a family provision application (that is, where a disappointed beneficiary (beneficiary A) does not challenge the validity of the will, but brings a claim to the court that he or she should receive more by way of adequate provision for his or her proper maintenance and support). Beneficiary A can only receive more at the expense of the other beneficiaries. When (to avoid the uncertainty and costs of litigation) the parties reach a settlement, the other beneficiaries effectively redirect some of their inheritance to beneficiary A.

  • A beneficiary disclaiming an inheritance.

  • A beneficiary seeking to sell or raise money (by mortgage or charge) on his or her inheritance before it has been received.

Validity of foreign wills and foreign grants of probate

18. To what extent are wills made in another jurisdiction recognised as valid/enforced in your jurisdiction? Does your jurisdiction recognise a foreign grant of probate (or its equivalent) or are further formalities required?

Validity of foreign wills

For the formal validity of wills with a foreign connection see Question 16. See Question 26 for a foreign will's substantive effectiveness.

Validity of foreign grants of probate

The Australian states and territories vary considerably in terms of the foreign jurisdictions from which a grant receives reciprocal recognition (known as resealing).

If the grant has been made in a foreign jurisdiction from which the state or territory does not permit a reseal, then an authenticated copy of the foreign will, as contained in an authenticated copy of the foreign grant (often called an exemplification) must be produced and undergo the same probate procedure as would apply to a domestic will (except that the issued grant is usually limited until the original will or a more authenticated copy is proved).

A foreign will that has not already been admitted to probate in the foreign jurisdiction will be physically transported to an Australian state/territory and undergo the same probate process as would apply to a domestic will.

Death of foreign nationals

19. Are there any relevant practical estate administration issues if foreign nationals die in your jurisdiction?

If a foreign national dies in Australia, a death certificate is issued. The issues that may arise can vary considerably.

The threshold question is whether the foreign national has any assets situated in Australia. Insignificant movables such as clothing, luggage, and so on, will not usually raise issues. If there are assets in Australia, there may be issues as to whether the foreign national has made a will (and if so, whether or not the formalities discussed in Question 16 have been complied with) or whether the foreign national has died without any will at all (intestacy).

In the case of intestacy, the foreign national's law of domicile will determine the succession to movable assets whilst the succession to immovable assets located in Australia (usually land) will be determined by the law of the Australian state or territory where the land is situated (see Question 26).

Administering the estate

20. Who is responsible for administering the estate and in whom does it initially vest?

Responsibility for administering

The responsibility for administering deceased estates rests with the personal representatives.

In the case of a will, the personal representative is known as an executor. If there is a will but no executor appointed or none willing or able to act, one of the beneficiaries becomes a de facto executor, known as an administrator with the will.

In the case of intestacy, the personal representative is known as an administrator. The right to administer on intestacy is broadly determined in accordance with an order of priority (a person with a larger interest on intestacy has priority over a person with a smaller interest).

Vesting

The initial vesting (sometimes called representative succession, to distinguish it from the ultimate beneficial succession in the hands of beneficiaries) is with the personal representative.

 
21. What is the procedure on death in your jurisdiction for tax and other purposes in relation to:
  • Establishing title and gathering in assets (including any particular considerations for non-resident executors)?

  • Paying taxes?

  • Distributing?

Establishing title and gathering in assets

The personal representative is responsible for establishing title and gathering in assets. However, in some Australian states (notably Queensland) an executor can administer quite large estates on an informal basis. Executors generally have to produce proof of the validity of the will and of their status as executor or executors (known as probate for wills or letters of administration in the case of intestacy).

Procedure for paying taxes

The responsibility for paying taxes lies with the personal representative. The most common tax issues relate to federal income tax, including CGT. Generally, exemptions or concessions apply for state/territory taxes (see Question 8).

The personal representative must lodge any outstanding tax returns for the deceased (including a final one to date of death, often for part of a year), secure an assessment and pay the assessment from the assets of the estate.

For the post-death period, the estate itself can be treated as a separate taxpayer. It is the responsibility of the personal representative to lodge a tax return, obtain an assessment, and pay the assessment from the estate assets.

Distributing the estate

The personal representatives are responsible for distributing the estate.

A family provision application may alter the distribution pattern (see Question 17), but it remains the responsibility of the personal representatives to attend to the distribution.

The personal representative should always provide the residuary beneficiaries (whose interest is in the net value of the estate) with sufficient accounting to enable them to determine for themselves that their share has been correctly calculated.

 
22. Are there any time limits/restrictions/valuation issues that are particularly relevant to an estate with an element in another jurisdiction?

Time limits

Time limits apply to:

  • Lodging tax returns (see Question 1).

  • Commencing a family provision application. Time periods vary in each state/territory, but usually are measured in terms of the number of months elapsed since date of death.

Valuations

Many estates are administered without formal valuations (for example, where an estate consists entirely of assets that have no value other than face value (such as bank accounts or debts due to the estate) or listed investments with readily available market quotations).

Nevertheless, valuations may be desirable or necessary for many reasons, for example:

  • The constituent assets may be of the type that, when distributed in specie to beneficiaries and sold later on, could generate a taxable capital gain. Therefore, the personal representative should advise beneficiaries of the deceased's cost base (generally, the value at which the deceased is considered to have acquired the asset) (see Question 7).

  • To establish equality or proportionality among beneficiaries.

  • If an estate is challenged by way of family provision (see Question 17), the court will invariably expect valuation evidence (rather than estimates by the parties).

 
23. Is it possible for a beneficiary to challenge a will/the executors/the administrators?

Both the will and the personal representatives may be the subject of challenges.

Challenges to a will

A will may be challenged on the following grounds:

  • That it is not technically valid (for example, the will maker lacked mental capacity when making the will, the will does not comply with the required formalities, or the will was procured by coercion).

  • Though technically valid, the will may be challenged by way of a family provision application (this challenge can also be made on intestacy) (see Question 17).

Challenges to a personal representative

The court has power to remove a personal representative if the continued administration of the estate by that particular personal representative is not in the best interests of those that are affected by the administration such as the beneficiaries of the estate.

Short of being removed, the conduct of the personal representative might undergo challenge or scrutiny by way of:

  • Enquiry as to why the personal representative has adopted a certain course of action.

  • The formal filing and passing of estate accounts.

  • Allegations that the personal representative has, in some other way, mismanaged the estate.

 

Succession regimes

24. What is the succession regime in your jurisdiction (for example, is there a forced heirship regime)?

The succession regime (so far as wills are concerned) is one of full testamentary freedom.

This freedom can be impinged on if the will attracts a family provision application (see Question 17). However, even a successful family provision application does not retrospectively invalidate the will as it was originally written.

The intestacy regimes are, in effect, a forced heirship regime that arises through necessity if a person does not exercise their right to make a will. In these cases, the machinery of state in effect makes a will for that person (subject to any successful family provision application (see Question 17).

Forced heirship regimes

25. What are the main characteristics of the forced heirship regime, if any, in your jurisdiction?

There is no forced heirship regime in any Australian state or territory. However, the intestacy regimes are, in effect, a forced heirship regime (see Question 24).

Real estate or other assets owned by foreign nationals

26. Are real estate or other assets owned by a foreign national subject to your succession laws or the laws of the foreign national's original country?

Wills

The answer is not merely a case of applying the law of domicile in relation to moveable property and the law of the place in relation to immovable property. Several different issues need to be considered:

  • Mental capacity to make the will. The prevailing judicial view is that this is a question of fact, and is not determined in accordance with any particular legal system.

  • Capacity of a foreign beneficiary (for example age):

    • for moveable property: this may be determined by whichever first occurs in the case of age of majority, by the law of the deceased's domicile or by the law of the beneficiary's domicile;

    • for immovable property: this is determined by the law of the place.

  • Formal validity (compliance with the structural requirements of a will such as being in writing, being signed, being witnessed). The adoption of the Hague Convention principles has removed all distinctions between movable and immovable property.

  • Construction (the actual meaning of the will):

    • for movable property: the law of domicile when the will was made;

    • for immovable property: the law of the domicile when the will was made (obeying the fundamental principle stated above), but subject to being valid in accordance with the law of the place (including laws relating to change of title on death for land).

  • Substantive validity of the will (such as the absence of fraud or coercion, whether an attesting witness can benefit, whether the laws as to perpetuities, accumulations and charities have been satisfied):

    • for movable property: the law of domicile at death;

    • for immovable property: the law of the place.

  • Revocation by a new instrument:

    • for movable property: the law of domicile, but it is not yet clear whether it is the law at the time of revocation or at the time of death;

    • for immovable property: the law of the place.

  • Revocation by operation of law (for example, by marriage or divorce). The law of domicile at the time of marriage or divorce decree, disregarding distinctions between movable and immovable property.

Intestacy

Beneficial succession to movable property is determined by the law of domicile at death whereas beneficial succession to immovable property is governed by the law of the place where the property is situated (irrespective of domicile).

 
27. Do your courts apply the doctrine of renvoi in relation to succession to immovable property?

Those aspects of succession law which are controlled by the Hague Convention principles (formal validity) effectively exclude renvoi insofar as the Australian states/territories predominantly define the law of another place (or similar expressions) to include only the internal law of that place.

Although no clear judicial indication has yet been given on issues other than formal validity so far as immovable property is concerned, the broad direction of the principles (see Question 26) seems to have minimised renvoi issues to date.

If such an issue arose, the highest Australian court (the High Court of Australia) has approached renvoi in what has been described as the "double" or "total" renvoi theory (foreign court theory). That involves an Australian court approximating its decision as closely as possible to the decision that would have been reached in the same type of case by a court of the foreign system to which the choice of law rules have pointed.

 

Intestacy

28. What different succession rules, if any, apply to the intestate?

The intestacy rules will, without regard to the wishes of the deceased person, simply call for the creation of an "inventory" of those most closely related to the deceased by blood, marriage or civil partnership/de facto relationship.

Generally, in all of the Australian states and territories, spouses (lawful or de facto, including statutorily recognised civil partners) occupy the highest position, but share with any children by blood of the deceased. In most states and territories, a set value of the estate (for example, A$100,000 in Victoria) goes to the surviving spouse, with the remainder divided between children of the deceased and the surviving spouse on a percentage basis. The existence of these nearer kin (spouse and children) excludes more remote kin, but in the search for the nearest living kin, the inventory can reach back as far as grandparents, forward to lineal descendants without limit, and sideways to as far as (in at least one of the Australian States) first cousins.

 
29. Is it possible for beneficiaries to challenge the adequacy of their provision under the intestacy rules?

A beneficiary on intestacy may bring a family provision application (see Question 18).

 

Trusts

30. Are trusts (or an alternative structure) recognised in your jurisdiction?

Trusts are recognised in all Australian states and territories. They are a common feature of the legal landscape.

The residency of a trust is discussed in Question 2. The rule against perpetuities is discussed in Question 33.

Most trusts are created intentionally (including by will), but some are imposed as a result of conduct.

 
31. Does your jurisdiction recognise trusts that are governed by another jurisdiction's laws and are created for foreign persons?

Australia has ratified the Hague Convention on the law applicable to trusts by means of the Trusts (Hague Convention) Act 1991, and therefore recognises trusts that are governed by another jurisdiction's laws and that are created for foreign persons.

 
32. What are the tax consequences of trustees (for example, of an English trust) becoming resident in/leaving your jurisdiction?

A change of residence on the part of the trustees of a trust (leaving Australia) can change the residence of the trust and lead to a CGT event (see Question 3).

 
33. If your jurisdiction has its own trust law:
  • Does the law provide specifically for the creation of non-charitable purpose trusts?

  • Does the law restrict the perpetuity period within which gifts in trusts must vest, or the period during which income may be accumulated?

  • Can the trust document restrict the beneficiaries' rights to information about the trust?

Purpose trusts

Some non-charitable purpose trusts can lawfully exist (for example, a trust for the benefit of an animal) but they are regarded as anomalous.

Perpetuities and accumulations

All Australian states/territories (except South Australia) apply some form of rule against perpetuities. This requires a trust to vest either within a specified number of years from its commencement (80 years in a number of states/territories), or within a formula known as a life in being plus 21 years. The life in being is some person who is alive when the trust begins and who is sufficiently identified or referred to in the constituent document for the trust (often the person is a member of the British royal family due to the ease of tracking their lifespan).

Beneficiaries' rights to information

Beneficiaries have a right to proper accounting by the trustee. The right of beneficiaries to access and inspect trust documents is in some degree of flux. The preferred view is that beneficiaries do not automatically have a right of access and inspection, but the court may order access and inspection as part of its jurisdiction to interfere in the due administration of the trust.

 
34. Does the law in your jurisdiction recognise claims against trust assets by the spouse/civil partner of a settlor or beneficiary on the dissolution of the marriage/partnership?

Divorce proceedings in Australia of married couples and disputes of parties in a domestic relationship (including same sex couples) are both governed by the Family Law Act 1975 (Cth). A party's financial statement is required to make a full and frank disclosure of their financial circumstances, including details of any trust of which:

  • The party is the appointer or a trustee.

  • The party or their child or spouse or de facto spouse is an eligible beneficiary as to capital or income.

  • The party has any power or control (either direct or indirect).

  • The party has the power directly or indirectly to remove or appoint a trustee.

  • The party has the power whether subject to the concurrence of another person or not to amend the terms.

When making a financial settlement, the court can effectively disregard any trust structure and make an order that takes notice of the applicability of the foregoing circumstances.

 
35. To what extent does the law of your jurisdiction allow trusts to be used to shelter assets from the creditors of a settlor or beneficiary?

Trusts can shelter assets from creditors in Australia unless it can be demonstrated that the assets have been placed in the trust structure to defeat the creditor's claims. A trust structure contained in a will or in existence prior to the claim arising, will often shelter the trust's assets from creditors.

 

Charities

36. Are charities recognised in your jurisdiction?

There is no answer content for this Question, as it is a new addition to the template that did not exist at the time of writing.

 
37. If charities are recognised in your jurisdiction, how can an individual donor set up a charity?

There is no answer content for this Question, as it is a new addition to the template that did not exist at the time of writing.

 
38. What are the benefits for individuals when setting up charitable organisations?

There is no answer content for this Question, as it is a new addition to the template that did not exist at the time of writing.

 

Ownership and familial relationships

Co-ownership

39. What are the laws regarding co-ownership and how do they impact on taxes, succession and estate administration?

Co-ownership of personal property may generally be joint or in common, with the same incidence or attributes as joint tenancies or tenancies in common. In particular, joint ownership gives rise to a right of survivorship (the transfer to the survivor will generally be exempt from taxes and duties), while the right of a deceased owner in common devolves to the deceased's personal representatives. Co-ownership can be created at law, in equity or by statute.

Generally, for tax purposes, a partnership is not treated as a separate entity independent of the partners. Rather, each partner is treated as having an individual interest in their share of partnership income. Alienation of a share of partnership income will have CGT consequences. For business partnerships, there are limits on the deductibility of payments to relatives and related entities of partners. Special tax rules may apply for the division of net income or loss between co-owners of rental property.

Familial relationships

40. What matrimonial regimes in trust or succession law exist in your jurisdiction? Are the rights of cohabitees/civil partners in real estate or other assets protected by law?

Property disputes between unmarried couples since July 2010 are subject to the Federal jurisdiction of the Family Law Act. In some Australian states, it is possible to register the relationships of cohabitees/civil partners and enter into binding agreements relating to the parties' assets (see Question 42).

 
41. Is there a form of recognised relationship for same-sex couples and how are they treated for tax and succession purposes?

Legislation was recently passed that ensures that same-sex couples and families are treated the same way as other couples and families for income tax and superannuation (Australian pension) purposes. Examples of the changed treatment include rollover (deferral) relief for some capital gains arising due to a relationship breakdown, access to the dependent spouse tax offset, transferring unused senior Australians tax offset to a partner, and claiming the net medical cost of dependants through the net medical expenses tax offset.

 
42. How are the following terms defined in law:
  • Married?

  • Divorced?

  • Adopted?

  • Legitimate?

  • Civil partnership?

Married

The Family Law Act 1975 (Cth) describes marriage as the union of a man and a woman to the exclusion of all others voluntarily entered into for life.

Any union in the nature of marriage that is, or has at any time been, polygamous is deemed to be a marriage for the purposes of the Act as long as it is entered into in a place outside Australia. Therefore, it is possible for a migrant who has validly married two wives under the law of his country of origin to divorce either or both of them in an Australian court.

Divorced

The Family Law Act refers to divorces as dissolutions. A decree of dissolution is distinct from a decree of nullity (which declares that no marriage ever existed). In the Act, there is only one ground for divorce, being that the marriage has broken down irretrievably.

Adopted

Adoption is the legal process (governed by state/territory legislation) by which the existing legal parent-child relationship is severed and substituted by a new legal parent-child relationship. The paramount consideration in the adoption process is the best interests of the child being adopted.

Legitimate

Where it is proved that a child is born to a woman who is lawfully married, a presumption of legitimacy applies to children born during the marriage (regardless of when conception occurred). The presumption of legitimacy may be rebutted by evidence, and the burden of rebuttal rests on the party asserting the illegitimacy.

In all jurisdictions, where a child is born during a marriage or within ten months after its termination by death or otherwise, the child is presumed to be the child of the husband in the absence of proof to the contrary. Each jurisdiction has legislation that establishes presumptions in relation to children conceived as a result of artificial conception procedures.

Civil partnership

In some Australian jurisdictions, it is possible to record the particulars of certain relationships. The term "registered relationship" rather than "civil partnership" is used in most states. For example, a "registered relationship" is defined in the Queensland Act (Relationships Act 2011 (Qld)) to mean a legally recognised relationship that may be entered into by any two adults, regardless of their sex.

Minority

43. What rules apply during the period when an heir is a minor? Can a minor own assets and who can deal with those assets on the minor's behalf?

The age for majority in Australia is 18 years. During their minority, a minor's assets are usually held on their behalf by a trustee appointed in accordance with the document that creates their entitlement (for example, a will or by a court in accordance with the relevant state/territory trustee legislation).

 

Capacity and power of attorney

44. What procedures apply when a person loses capacity? Does your jurisdiction recognise powers of attorney (or their equivalent) made under the law of other jurisdictions?

A loss of legal capacity occurs when a person is unable to comprehend the nature of a document and its legal effect.

All Australian states and territories allow for the creation of enduring powers of attorney. Whereas an enduring power of attorney will continue to be valid if the donor subsequently loses legal capacity, the validity of a general power of attorney will automatically cease. It is not possible to create an enduring power of attorney subsequent to the loss of capacity. It will then be necessary to obtain an order to appoint a guardian in accordance with the relevant state legislation with the appointee subject to the approval of the tribunal.

A power of attorney made:

  • In other Australian states is recognised if its creation is in accordance with laws of the jurisdiction where it was created.

  • Overseas can be used in Australia but it is recommended that it is notarised in the jurisdiction where it was created as complying with the relevant laws.

 

Proposals for reform

45. Are there any proposals to reform private client law in your jurisdiction?

Taxation laws in Australia are in a constant state of flux. A number of proposed amendments to tax laws (in addition to those discussed elsewhere) will, if enacted, affect private client law, for example:

  • There is a proposed substantial rewriting of laws about taxation of trusts.

  • There is a proposal to allow certain trusts and partnerships with accounts kept solely or predominantly in a particular foreign currency to calculate their net income by reference to that currency. However, the current government has indicated that they will be seeking further consultation on this proposal.

  • Draft federal legislation was released in 2011 in relation to foreign accumulation funds and will, if enacted as proposed, operate retrospectively (see Question 13).

  • The Queensland Law Reform Commission is currently reviewing the effectiveness of the Queensland trusts legislation and significant changes to that legislation are anticipated.

  • A form of international will was due to be adopted in 2013 when it was indicated Australia would adopt the uniform law relating to wills in accordance with the International Institute for the Unification of Private law (UNIDROIT Convention (Washington 1973)). Each state and territory, apart from the Northern Territory, have now passed legislation recognising a form of international will. However, this legislation has not yet been proclaimed.

    The UNIDROIT Convention requires that a will be executed in the presence of two witnesses and an authorised person (the latter being in the Australian context an Australian legal practitioner or a public notary) who certifies the will by completing the prescribed certificate. It is proposed that construction and revocation of the international will be in accordance with local laws but an international will may still be recognised if validly executed in a foreign jurisdiction which is not party to the Convention (see Question 16).

*The authors acknowledge the assistance of Travis Monczko, Lawyer, Minter Ellison, in the preparation of this paper.

 

Online resources

The above are official state and territory government websites containing up-to-date information (including legislation, case law and government rulings) about state and territory taxes, including stamp duty.

Australasian Legal Information Institute

W www.austlii.edu.au

A free, regularly updated website maintained jointly by the Faculties of Law at the University of Technology Sydney and the University of New South Wales. Contains information about all federal and state and territory laws, including legislation, case law and law journal articles.

Tax authority: Australia

W www.ato.gov.au

State and Territory Government websites

Official federal government website containing up-to-date federal tax and superannuation information including legislation, case law and government rulings. Maintained by the Australian Taxation Office.

W www.osr.nsw.gov.au (New South Wales)
www.sro.vic.gov.au (Victoria)
www.osr.qld.gov.au (Queensland)
www.finance.wa.gov.au/cms (Western Australia) www.sro.tas.gov.au (Tasmania)
www.revenuesa.sa.gov.au (South Australia)
www.revenue.act.gov.au (Australian Capital Territory)
www.nt.gov.au/ntt/revenue (Northern Territory)


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