Interaction Between Lawyers and Accountants Relating to Federal and State Taxes
During the conduct of legal matters and in particular, in relation to commercial transactions, purchase and sale of real property and deceased estates, there needs to be careful co-ordination and 
communication between your lawyer and your accountant to make sure that you cover aspects relating to taxation and stamp duty and I wish to touch upon some of the matters that need to be addressed.
Stamp Duty payable to Revenue NSW –
Stamp duty has been abolished on many transactions but still remains on the sale of real estate and the sale of a business where it also involves the sale of real estate. It is important that you talk to your lawyer about the amount of stamp duty that will be payable if you are purchasing real property which is at an ad valorem rate. For example, if you are purchasing a property for $500,000 the stamp duty payable on the contract and transfer is an amount of $18,010.00. This obviously has to be factored into your figures including any borrowing that may be necessary.
Stamp duty has been abolished relating to the purchase of businesses except where it also involves the sale of real property as part of the transaction. In those situations, stamp duty is payable on the equipment purchased as part of the business and the total stamp duty is worked out by assessing what the sale price of the real property is and what the value of the equipment is.
Capital Gains Tax –
This is clearly an area where you should not only consult your lawyer but also your accountant, so you can work out what capital gains tax (CGT) is payable relating to the sale of any property which has increased in value since you have purchased it. In particular, you would be looking at real property and shares, however, obviously there is some property that actually decreases in value such as motor vehicles. It should be noted that CGT is payable upon a disposition, so it could also be a situation where a property is gifted to another party. In those situations, the CGT is paid on the difference between the cost base (worked out by your accountant) and the actual value of the property.
It should also be noted that there are roll over provisions you can discuss with your accountant which means that the CGT is not paid on the disposition in situations such as property which is passing to a party under a deceased estate or where the property is passing between one party and another in relation to a breakdown of a marriage/de facto relationship.
GST –
GST is an important factor that needs to be taken into account in commercial transaction relating to the sale of real property. There are exemptions from GST payment relating to the sale of some real property and in particular the sale of residential property. Otherwise, you should not only consult your lawyer but also your accountant to make sure there are no GST implications relating to the sale of your real property. In terms of the sale of a business, GST is payable, however, it may be GST exempt in many situations where the business is sold as a ‘going concern’. Clearly, this is an area which needs input from your accountant.
Income Tax on Deceased Estates –
Executors and beneficiaries should be aware that income tax is payable on deceased Estates in many circumstances including the deceased’s tax return up until the date of death. After the date of death, income tax is payable by the Estate on income earnt on the Estate before distribution. This may include CGT where property is sold prior to distribution to beneficiaries.
Another aspect that needs to be looked at relating to deceased Estates is tax that may be payable by the Estate on monies received from a superannuation fund. This may also occur where there is a payment by the fund directly to a dependent as defined under the superannuation legislation. If the superannuation money is paid to the Estate and is paid out to people who are not dependents within the meaning of the income tax legislation, then tax will be payable on the money paid from the superannuation fund.
Sometimes this tax is actually paid out by the fund itself and in other situations, it is tax which has to be paid by the deceased Estate or the individual receiving the benefit.
Compensation Claims –
Payments relating to personal injury compensation claims settled either before any Court action is taken or as awarded by a Court on a settlement or by a verdict, do not attract tax. However, if a claim is made for compensation that is not a personal injury claim, then there are taxation implications which need to be sorted out with your accountant.
General Disclaimer –
Remember it is important that you consult with your lawyer and your accountant in relation to legal transactions that might attract a tax of some type.
You must note that this article is a general comment on tax implications and is not to be taken as legal advice to you relating to your position.
If you would like Jack to address a particular legal issue, send your request to jack.blaxland@ticliblaxland.com.au
This article is intended to be for information and educational purposes only and cannot be relied upon as legal advice. The information may not apply to your circumstances or to your particular situation. If you need specific advice or you have any questions, we welcome you to contact us directly.
