What Are CGT Small Business Concessions?

Capital Gains Tax (CGT) applies to profits from asset sales. For small businesses, the Australian Taxation Office (ATO) provides four primary CGT Small Business Concessions. These measures aim to reduce or eliminate tax on active business assets. They include the 15-year exemption, the 50% active asset reduction, the retirement exemption, and rollover relief. Applied correctly, these concessions can significantly lower your tax bill, sometimes to zero.

Who Qualifies for These Concessions? Basic Eligibility Criteria

Eligibility for CGT Small Business Concessions depends on two fundamental conditions: your business must qualify as a ‘small business entity’ (or meet an alternative test), and the asset sold must be an ‘active asset’.

Small Business Entity Status

To qualify as a small business entity, you must satisfy one of two tests:

• Aggregated Turnover Test: Your business, including any affiliated or connected entities, must have an aggregated annual turnover under $2 million. This includes all ordinary income from business operations.
• Maximum Net Asset Value (MNAV) Test: If your aggregated turnover exceeds $2 million, you might still qualify. In this case, the total net value of your CGT assets (and those of connected or affiliated entities) must be under $6 million immediately before the CGT event. Generally, the calculation excludes personal assets like your main residence (unless used for business) and superannuation balances. The $6 million MNAV threshold has not increased with recent changes.

The Active Asset Test

The asset you sell must be an ‘active asset’. This means you use it, or hold it ready for use, in your business or that of an affiliate or connected entity.

You must have used the asset actively for:
* At least half its ownership period, if you owned it for 15 years or less.
* At least 7.5 years, if you owned it for more than 15 years.

Certain assets do not qualify. For instance, a passive investment property generally won’t be an active asset unless its rental use was temporary.

Special Rules for Shares or Trust Interests

Selling shares in a company or units in a trust involves specific conditions. For shares or units to qualify, they must pass a ‘modified active asset test’: at least 80% of the company’s or trust’s assets by market value must be active. Additionally, the seller must usually be a ‘CGT concession stakeholder’ just before the sale. This means holding at least a 20% interest in the business, or being a spouse with such an interest.

Understanding Each CGT Small Business Concession

The four main CGT Small Business Concessions each offer distinct advantages, often working in combination to reduce your tax liability.

The 15-Year Exemption

Among the CGT Small Business Concessions, the 15-year exemption is arguably the most generous. It completely disregards the capital gain, potentially resulting in zero CGT payable.

To qualify, you must meet these conditions:
* You must continuously own the active asset for at least 15 years.
* You must be 55 or older, with the CGT event linked to your retirement, or be permanently incapacitated. Retirement implies a significant reduction in work hours, not necessarily full cessation.
* The asset must have been actively used for at least 7.5 years of its total ownership.

For companies or trusts, a ‘significant individual’ must have held the asset for periods totaling at least 15 years. This exemption particularly appeals to long-term Melbourne business owners, enabling them to transfer substantial tax-free proceeds, potentially into superannuation.

The 50% Active Asset Reduction

The 50% active asset reduction allows eligible small business owners to halve their capital gain. This concession applies to qualifying active assets.

Unlike other concessions, this reduction typically applies automatically if you meet the basic conditions, unless you choose to opt out. Opting out can be strategic if another concession offers more benefit. This reduction often combines with other concessions for further capital gain reduction.

Upcoming Change: The aggregated turnover threshold for the 50% active asset reduction will increase from $2 million to $10 million, effective 1 July 2027. This change broadens accessibility for many businesses, including those in Melbourne previously exceeding the $2 million limit. Consequently, approximately 98% of all active Australian businesses will qualify for this concession.

The Retirement Exemption

The retirement exemption permits you to disregard up to $500,000 in capital gains over your lifetime. This concession specifically supports business owners boosting retirement savings.

Key points for the retirement exemption:
* Under 55 years old: You must contribute the exempt capital gain directly into a complying superannuation fund, subject to strict timeframes.
* 55 years or older: You do not need to make a superannuation contribution; you can receive the funds directly.

Despite its name, you do not need to retire from your business to claim this exemption. It offers a powerful tool for wealth accumulation and succession planning. Like the 50% active asset reduction, this concession also combines with other available CGT Small Business Concessions.

Selling Shares vs. Business Assets: Critical Distinctions

Applying CGT Small Business Concessions differs significantly depending on whether you sell direct business assets or company shares (or trust units).

When selling individual business assets, you assess each asset separately against the active asset test and other eligibility conditions. Therefore, some business assets might qualify for concessions while others do not.

Conversely, when selling shares in a company or units in a trust, the entity itself is the focus. For these shares or units to be active assets, at least 80% of the company’s or trust’s assets by market value must be active (this is known as the 80% active asset test). The seller must also generally be a ‘CGT concession stakeholder,’ typically owning at least 20% of the company’s or trust’s voting power or distributions, or being a spouse of such an individual. Correctly structuring the sale—as an asset or share sale—significantly impacts the tax outcome and the after-tax funds available to Melbourne business owners.

The Order of Application: Maximising Your Benefits

Applying the CGT Small Business Concessions in the correct order is crucial for maximising tax relief. The most advantageous sequence generally is:

1. 15-Year Exemption: If you qualify, this full exemption takes precedence over all other concessions.
2. General CGT Discount (individuals and trusts): For assets held over 12 months, the traditional 50% discount applies before other small business concessions. However, be aware of upcoming changes: from 1 July 2027, the government proposes to replace the general 50% CGT discount for individuals, trusts, and partnerships with an indexation-based system featuring a 30% minimum capital gains tax. Crucially, this broader reform does not affect the CGT Small Business Concessions themselves.
3. 50% Active Asset Reduction: This applies to the remaining capital gain, after any general CGT discount.
4. Retirement Exemption or Small Business Rollover: You apply these last to further reduce or defer any residual capital gain.

Thorough planning around these steps is paramount. The interplay between general CGT discount changes and small business concessions, especially post-1 July 2027, makes professional advice vital for Melbourne business owners considering a sale.

Secure Your Financial Future: Strategic Planning for Business Sales

Navigating CGT Small Business Concessions demands a deep understanding of tax law and meticulous planning. For Victorian business owners, early engagement with specialist legal and financial advisors proves crucial. These professionals can assess eligibility, structure transactions efficiently, and apply concessions optimally. This is especially relevant considering recent legislative changes, such as the increased aggregated turnover threshold for the 50% active asset reduction and the broader general CGT discount changes from 1 July 2027. A Melbourne-based wealth management legal firm, for example, provides tailored advice, helping you optimise financial outcomes.

Understanding and strategically applying CGT Small Business Concessions profoundly impacts the wealth retained from selling your business or shares. For many Victorian business owners, these concessions offer a vital pathway to a comfortable retirement or future investment. The dynamic nature of capital gains tax makes proactive planning essential. Review your current business structure and asset holdings, forecast potential sale scenarios, and consult with experienced legal and financial advisors. Taking these steps ensures you are well-prepared to make informed decisions and maximise your financial legacy. Contact us today to discuss how these concessions apply to your unique circumstances and to develop a comprehensive strategy for your business sale.

Sources

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Key Estate Planning Requirements for Victorians

1. Drafting a Valid Last Will and Testament

Your Last Will and Testament forms the bedrock of your estate plan. This crucial legal document dictates exactly how your assets—everything from property to investments—will be distributed after your death. Without a valid Will, Victorian intestacy laws automatically take over, often leading to outcomes you never intended. This can also cause significant family disputes. Therefore, a properly drafted Will provides certainty for everyone involved.

2. Appointing a Competent Executor

Choosing your Executor is a pivotal decision in your estate planning. This individual or trustee company will carry out the instructions detailed in your Will. Their essential duties include locating all assets, paying any outstanding debts, and meticulously distributing inheritances. A good Executor is trustworthy, organized, and fully capable of managing these significant legal and financial responsibilities, especially during a difficult time for your family.

3. Clearly Defining Beneficiaries and Distributions

Precision here is vital. Your Will explicitly names who receives your assets and in what proportions. This provision extends beyond immediate family, enabling you to include charities, friends, or specific trusts. Clear designation significantly reduces the potential for disputes among beneficiaries. As a result, your wealth transfers smoothly according to your exact wishes.

4. Nominating Guardians for Minor Children

For parents, this stands as one of the most critical estate planning requirements. Your Will allows you to nominate who you wish to care for your minor children should both parents pass away. This thoughtful provision offers immense peace of mind, knowing that someone you trust, and who aligns with your family’s values, will look after your children.

5. Establishing Enduring Powers of Attorney (EPOA)

Estate planning extends beyond death; it also addresses incapacity. An Enduring Power of Attorney (EPOA) in Victoria allows you to appoint someone, known as your ‘attorney,’ to make financial and personal decisions for you if you lose capacity due to illness or accident. This document ensures someone manages your affairs without court intervention, providing continuous care for your finances and overall well-being.

6. Carefully Selecting Your Attorneys for EPOA

The choice of attorney for your EPOA is paramount. This person will wield significant control over your life decisions. They must be utterly trustworthy, financially responsible, and committed to acting solely in your best interests. You can appoint multiple attorneys and specify whether they act jointly or independently. Consider a professional if your affairs are particularly complex.

7. Creating an Advance Care Directive

Your voice matters, even when you cannot speak. An Advance Care Directive formally records your preferences for future medical treatment in Victoria. It can include specific instructions about treatments you consent to or refuse. This powerful document guides your medical team and family, alleviating the burden of difficult decisions and ensuring your values are respected.

8. Appointing a Medical Treatment Decision Maker

Complementing an Advance Care Directive, this document allows you to appoint a specific person to make medical treatment decisions on your behalf if you lose capacity. This chosen individual, having discussed your values with you, can advocate for your wishes. They provide invaluable support to your healthcare providers, ensuring providers understand and follow your preferences.

9. Understanding Probate and Administration Process

While not a document itself, understanding the process of probate is essential. The Supreme Court of Victoria legally validates your Will through probate, authorizing your Executor to act. Asset holders, for example, often require this legal validation before releasing significant assets. Knowing this process helps you plan realistically, understand potential timelines, and appreciate why a valid Will significantly streamlines administration.

10. Regularly Reviewing and Updating Your Estate Plan

Life changes constantly, and so do laws. Your estate plan must remain dynamic. Marriage, divorce, births, deaths, acquiring new assets, or changes in legislation (like those in Victoria for 2026) all necessitate a review. Regularly updating your Will, EPOAs, and directives ensures they remain current, effective, and truly reflect your intentions.

Safeguarding Your Legacy

Estate planning is a profound act of care and responsibility. It safeguards your assets, protects your loved ones, and provides invaluable peace of mind. To fully understand these and other critical estate planning requirements, take proactive steps today. Begin by consulting our detailed guide to help you craft your lasting legacy: [Link to Crafting Your Legacy: A Detailed Look at Last Wills & Testaments in Victoria (Updated for July 2026)]

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Why does the employee vs. contractor distinction matter for Australian SMEs?

The legal classification of a worker directly determines an SME’s obligations and a worker’s entitlements. For employees, businesses generally pay Pay As You Go (PAYG) withholding tax, Superannuation Guarantee (SG) contributions, and provide leave entitlements such as annual, personal/carer’s, and long service leave. Employers also bear responsibilities for payroll tax (if thresholds are met) and workers’ compensation insurance. Conversely, genuine independent contractors typically manage their own tax, superannuation, and insurance, offering businesses perceived cost savings and flexibility.

However, the “label” applied in a contract does not dictate the true nature of the relationship. Australian courts and regulators scrutinise the actual working arrangement. Incorrect classification, often termed “sham contracting,” is illegal under Australian law. It aims to deny workers their rightful entitlements, exposing businesses to severe penalties.

How do Australian authorities determine true employment?

Australian authorities employ different tests to determine worker status, depending on the legal context. From August 26, 2024, constitutional corporations use a “whole of relationship” test for Fair Work Act purposes. This test considers the real substance, practical reality, and true nature of the relationship. For tax and superannuation purposes, the Australian Taxation Office (ATO) primarily examines the legal rights and obligations established in the written contract, provided it is comprehensive and not a sham.

Key factors considered include:
* Control: Who dictates how, when, and where the work is performed? Employees usually follow the business’s direction, while contractors have greater autonomy over their methods and hours.
* Financial Risk: Does the worker bear responsibility for profit or loss, and do they invest in their own business? Contractors typically expose themselves to commercial risk.
* Tools and Equipment: Who supplies the necessary resources for the work? Employees often use employer-provided tools, whereas contractors typically use their own.
* Delegation/Subcontracting: Can the worker delegate or subcontract the work? Contractors generally have this right, while employees must personally perform the work.
* Integration: Is the worker an integral part of the business, or do they operate as a separate entity providing services to the business? Employees are typically integrated into the business structure.
* Basis of Payment: Is payment for time worked (wages) or for a specific result/milestone (invoices)? Contractors usually invoice for results.
* Exclusivity: Does the worker exclusively work for one business, or can they work for multiple clients? Contractors often work for various clients.

The High Court decisions in Personnel Contracting and Jamsek (2022) affirmed that the written contract’s terms are paramount for determining worker status where the contract is valid and not challenged as a sham. However, the Fair Work Act now broadens this to consider the “whole of relationship,” acknowledging that practice can override contractual labels.

What are the primary tax risks of misclassification?

Misclassifying an employee as a contractor carries significant tax implications. SMEs can face penalties and charges across several tax obligations.

Unpaid PAYG Withholding
If a business misclassifies an employee as a contractor, it fails to withhold PAYG tax from their payments. The ATO can then impose penalties for this failure, along with back payments of the under-withheld amounts. This can result in substantial, unexpected liabilities for the business.

Superannuation Guarantee Charge (SGC)
This is often the most common and costly risk. Businesses must pay superannuation for employees. They must also pay superannuation for contractors whose contracts are “wholly or principally for their labour,” even if the contractor has an ABN and invoices for their services.

If the ATO determines misclassification, the business becomes liable for the Superannuation Guarantee Charge (SGC). The SGC includes the unpaid superannuation amount, interest (currently 10% per annum), and an administration fee. Notably, the SGC is not tax-deductible. Furthermore, the ATO can impose additional penalties up to 200% of the SGC, particularly if they believe the business did not make a genuine effort to comply. These liabilities can extend back many years. From July 1, 2025, the super guarantee rate reaches 12%. Also, “Payday Super” rules effective from July 1, 2026, will tighten the timing for superannuation payments.

Payroll Tax Implications
Payroll tax is a state and territory-based tax. Payments to contractors are generally liable for payroll tax if they are engaged under a “relevant contract” and essentially work in a similar way to an employee. This applies even if the worker is a genuine contractor for ATO and Fair Work purposes. Each state and territory has its own threshold for payroll tax; for instance, the Victorian threshold is $1,000,000 from July 1, 2025. If payments exceed these thresholds, misclassified contractors can lead to significant payroll tax liabilities, interest, and penalties.

What other liabilities arise from misclassification beyond tax and superannuation?

The repercussions of misclassification extend beyond tax and superannuation, creating significant legal exposure under workplace laws.

Fair Work Act Compliance
If a worker is found to be an employee but was treated as a contractor, they can claim unpaid entitlements under the National Employment Standards (NES) or applicable awards. These include annual leave, personal/carer’s leave, public holiday pay, and sometimes long service leave. Businesses could also face claims for unfair dismissal if they terminated a misclassified worker as if they were a contractor.

The Fair Work Act also explicitly prohibits sham contracting, carrying substantial civil penalties. As of recent figures, a small business (fewer than 15 employees) can face penalties up to approximately $99,000 per contravention, and individuals directly involved can be fined up to $19,800. Recent legislative changes also require employers to demonstrate they “reasonably believed” an arrangement was a genuine contracting one to avoid sham contracting penalties.

Workers’ Compensation Insurance
Employers must typically provide workers’ compensation insurance for their employees. Misclassifying a worker as a contractor can leave a business exposed if the worker is injured on the job and later found to be an employee. State-based regulations govern workers’ compensation, adding another layer of complexity.

Personal Liability for Directors
Directors of companies can face personal liability for unpaid superannuation guarantee amounts under the Director Penalty Notice (DPN) regime. This means directors’ personal assets can be at risk if the company fails to meet its super obligations.

Reputational Damage
Beyond financial and legal penalties, misclassification can severely damage a business’s reputation. Public scrutiny and negative publicity stemming from sham contracting allegations can erode trust, impact employee morale, and make it harder to attract talent.

How can SMEs correctly classify their workforce?

Proactive steps are essential for SMEs to ensure correct worker classification and minimise risks.

Understand the Tests
Businesses must appreciate that different legal frameworks (ATO for tax/super, Fair Work Ombudsman for workplace rights, state revenue offices for payroll tax) apply distinct tests. While the High Court emphasises written contracts for tax, the Fair Work Act uses a “whole of relationship” test for constitutional corporations from August 2024, examining the practical reality of the arrangement.

Document the Relationship Clearly
Always use a clear, comprehensive written contract that accurately reflects the intended working relationship. The contract should explicitly detail the rights and obligations of both parties, ensuring these align with a genuine contractor or employee relationship. Avoid using language that suggests an employment relationship if the intent is to engage a contractor, such as fixed hours or referring to them as “part of the team.” Remember, the contract must reflect reality; if the actual working relationship deviates significantly, the law will often prioritise the reality.

Utilise ATO Tools and Guidance
The ATO offers an “Employee/Contractor Decision Tool” designed to help businesses determine worker status for tax and super purposes. SMEs should also consult ATO guidance, including Taxation Ruling TR 2023/4, which outlines the ATO’s approach post-High Court decisions.

Seek Professional Advice
When in doubt, seeking independent legal or accounting advice is the safest approach. A confidential review of existing arrangements can help identify and rectify potential misclassifications before they become costly liabilities. This investment is minimal compared to the significant costs of an audit or legal claim.

Regularly Review Arrangements
Business operations and working relationships can evolve. Periodically review contracts and actual working arrangements to ensure classifications remain appropriate. Changes in how work is performed, or the nature of the relationship, might necessitate re-evaluation.

What are the benefits of genuine contracting arrangements for SMEs?

Engaging genuine independent contractors offers several advantages for SMEs, allowing them to operate more efficiently and adaptably.

Flexibility and Specialisation
Contractors provide flexibility to scale a workforce up or down rapidly in response to changing project needs or market demands. They often bring specialised skills and expertise for short-term projects or to fill specific skill gaps, without the long-term overheads of a permanent employee. This enables businesses to access high-level talent efficiently.

Cost Structure
For genuine contractors, businesses are not typically responsible for ongoing employee entitlements like paid leave, superannuation (unless primarily for labour), or workers’ compensation premiums. This can result in a more project-based, variable cost structure, protecting the business’s bottom line.

Reduced Administrative Burden (when genuine)
When correctly classified, contractors manage their own tax, superannuation, and insurance. This reduces the administrative load for the SME compared to managing payroll, entitlements, and compliance for employees.

What are the benefits of employing staff for SMEs?

While contractors offer flexibility, employing staff also brings distinct advantages, fostering stability and control within a business.

Control and Integration
Employers have greater control over how, when, and where employees perform their work. Employees are integral to the business, allowing for deeper integration into teams and processes. This level of control supports consistent service delivery and adherence to company standards.

Team Cohesion and Culture
Employees typically contribute to a stronger workplace culture and team cohesion. Their ongoing presence fosters collaboration, shared goals, and a sense of belonging, which can be vital for business identity and productivity.

Training and Retention
Investing in employee training and development builds internal capabilities and promotes long-term retention. Employees are more likely to commit to a business where they feel valued and see opportunities for growth, creating a stable and skilled workforce. Offering fair pay and legal entitlements, including superannuation and leave, builds stability and trust, acting as a foundational benefit.

Navigating the employee vs. contractor distinction requires careful consideration and an up-to-date understanding of Australian legislation. SMEs must prioritise accurate classification, relying on robust contracts and current guidance from the ATO and Fair Work Ombudsman. Proactive management of these arrangements, coupled with professional advice, safeguards against significant financial penalties and ensures fair treatment for all workers.

Sources

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Why Your Will Matters More Than Ever

A Will stands as the cornerstone of any effective estate plan. This legally binding document outlines how your assets, your ‘estate,’ will be distributed after your death. Beyond merely dividing property, a thoughtfully drafted Will provides critical directives and peace of mind.

It allows you to designate an Executor, the trusted individual or entity responsible for carrying out your wishes and managing your estate’s administration. You decide who will benefit from your hard-earned assets – from real estate and investments to cherished personal items – by naming beneficiaries. For those with minor children or dependants needing ongoing support, a Will enables the establishment of trusts. Crucially, you can nominate a guardian for your minor children, ensuring their care aligns with your values should both parents pass away. A clear Will also significantly reduces the potential for family disputes and legal challenges. This prevents unnecessary emotional and financial strain during an already difficult time.

What Happens If You Die Without a Will in Victoria?

Dying without a valid Will means you’ve died ‘intestate.’ In such cases, the Victorian legal system, specifically the Administration and Probate Act 1958 (Vic), dictates how your assets are distributed. This formula is rigid, potentially leading to outcomes far removed from your true desires.

As of July 2026, the Victorian rules of intestacy generally provide for distribution as follows:

• Partner and Children (with that partner): Your partner receives the entire estate.
• Partner and Children (from a previous relationship): This scenario involves a ‘statutory legacy.’ Your partner is entitled to all personal chattels, a fixed initial amount, and half of the remaining estate. The other half is divided among your children from the previous relationship. For deaths occurring between 1 July 2026 and 30 June 2027, this statutory legacy amount is $591,390.00.
• No Partner, but Children: Your estate is divided equally among your children.
• No Partner and No Children: The estate passes to your parents, then siblings, and so on, following a predetermined hierarchy.

This inflexible system often fails to account for modern family structures, estranged relatives, or charitable intentions. Relying on intestacy rules can result in unintended beneficiaries, prolonged legal processes, and increased costs for your loved ones.

How Powers of Attorney Safeguard Your Future While You’re Alive

Estate planning extends beyond your death, addressing situations where you might lose the capacity to manage your own affairs. In Victoria, an Enduring Power of Attorney (EPOA) serves as the critical document for this.

Governed by the Powers of Attorney Act 2014 (Vic), an EPOA allows you to appoint one or more people, known as your ‘attorneys,’ to make decisions on your behalf. It’s ‘enduring’ because its authority continues even if you lose decision-making capacity due to illness, accident, or age.

An EPOA can cover:

• Financial Matters: This includes managing bank accounts, paying bills, buying or selling property, and handling investments.
• Personal Matters: Decisions about your living arrangements (e.g., whether you live at home or in aged care), who you associate with, and other lifestyle choices fall into this category.

You specify when your attorney’s power begins. For financial matters, it can be immediate or contingent upon losing capacity. For personal matters, the power only commences once you’re unable to make decisions yourself.

Choosing an attorney is a profound act of trust. This individual will hold significant control over your life. Therefore, they must be trustworthy, financially responsible, willing, and capable of fulfilling the role. You can appoint multiple attorneys, specifying whether they must act jointly (all agree) or severally (each can act independently). Professionals like solicitors or trustee companies are also viable options, particularly for complex financial affairs.

The Powers of Attorney Regulations 2025 (Vic), which commenced on August 10, 2025, brought updated prescribed forms and witnessing requirements. While the core legislation remains, using the latest forms is essential for validity. These regulations also include provisions for electronic and remote witnessing for certain aspects, though for Advance Care Directives, witnessing must still be done in person.

Your Medical Wishes: Medical Treatment Decision Makers and Advance Care Directives

Your voice in medical decisions, even if you can’t speak for yourself, is a fundamental right in Victoria. The Medical Treatment Planning and Decisions Act 2016 (Vic) is the key legislation ensuring your values and preferences are respected.

This Act provides for two primary documents:

1. Appointing a Medical Treatment Decision Maker: This allows you to legally appoint a specific person to make medical treatment decisions for you if you lose capacity. This individual can consent to or refuse treatment, guided by what they believe your wishes would be. Your chosen decision-maker should be someone with whom you’ve openly discussed your values, and who you trust to advocate on your behalf.
2. Advance Care Directive (ACD): An ACD formally records your preferences for future medical treatment. It can contain an ‘Instructional Directive,’ a legally binding statement about treatments you consent to or refuse. It can also include a ‘Values Directive,’ outlining your broader values to guide your Medical Treatment Decision Maker. For example, you might state you would refuse life-sustaining treatment if in a terminal phase with no prospect of recovery. This clarity provides comfort to your family and medical team, alleviating the burden of difficult choices.

The framework established by the Medical Treatment Planning and Decisions Act 2016 creates clear obligations for health practitioners and ensures medical decision-making aligns with an individual’s preferences.

Federal Policy Shifts: Capital Gains Tax and Trusts

Recent federal budget changes, with effective dates in July 2026 and 2027, represent significant structural reforms to the taxation of private wealth in Australia, directly impacting estate planning.

Capital Gains Tax (CGT) Overhaul: From July 2027

From 1 July 2027, the long-standing 50% CGT discount for assets held over 12 months is set to be replaced with a cost base indexation model. Additionally, a 30% minimum tax will apply to realised capital gains. These changes will affect a wide range of assets, including inherited investment properties, shares, and business interests.

For assets acquired before 1985 (pre-CGT assets), the current exemption will be limited. Gains accrued before 1 July 2027 will remain exempt, but those accruing after this date will be subject to the new indexation and minimum tax rules. This is a material change for many long-held estates. The main residence exemption for one’s primary home is generally unaffected, especially if sold within two years of death.

Navigating the “Right to Occupy” and CGT for Inherited Homes

A critical development impacting inherited property and CGT is the Australian Taxation Office’s (ATO) Draft Taxation Determination TD 2026/D1, released in January 2026. This draft determination tightens the criteria for accessing the main residence exemption for inherited properties, specifically concerning the “right to occupy.”

Previously, a beneficiary living in a deceased’s home, even with a trustee’s discretion, was often assumed to maintain the main residence exemption. However, TD 2026/D1 now requires an express, unambiguous right to occupy the dwelling to be stated directly in the deceased’s Will for a named individual. Informal arrangements or broad discretionary powers granted to trustees (even in testamentary trusts) are unlikely to satisfy this requirement. Failing to meet this explicit wording could lead to significant Capital Gains Tax liabilities for beneficiaries, potentially costing estates hundreds of thousands of dollars. Estate planners must review existing Wills and testamentary trust structures to ensure they comply with this stricter interpretation, particularly before the 1 July 2026 tax-change window for many aspects.

Discretionary Trusts and the New 30% Minimum Tax

From 1 July 2028, a significant shift will occur for discretionary trusts. A 30% minimum tax will apply to the taxable income of these trusts at the trustee level. While individual beneficiaries will receive non-refundable credits for tax paid, those on lower marginal tax rates (below 30%) may effectively pay more tax, as excess credits will be lost. This significantly curtails the traditional income-splitting advantage of discretionary trusts.

Crucially for estate planning, this minimum tax will also apply to discretionary testamentary trusts created after 12 May 2026. This impacts the tax benefits previously enjoyed by beneficiaries like children or low-income earners within these structures. Existing discretionary testamentary trusts (in existence as of 12 May 2026) may have some protection, with income from assets already held within them remaining exempt from the new minimum tax rules. Deceased estates themselves and fixed trusts are currently excluded from this measure.

These changes highlight the importance of reviewing existing trust structures and considering their ongoing efficacy as estate planning tools. While trusts remain valuable for asset protection and control, their tax-driven flexibility is undeniably altered.

Updated Costs for Administering an Estate in Victoria

Administering an estate, particularly when probate is required, involves certain costs. It’s crucial to understand these, as they can impact the net value distributed to beneficiaries.

Probate Filing Fees (Updated for July 2026)

A Grant of Probate, issued by the Supreme Court of Victoria, formally validates a Will and authorises the Executor to act. Asset holders, like banks and Land Use Victoria, typically require this grant for significant assets, especially real estate.

Effective 1 July 2026, the Supreme Court of Victoria’s filing fees for probate applications have been updated. These fees are calculated on a sliding scale based on the gross value of the deceased’s Victorian estate. For instance:

• Estates valued at less than $250,000: Fee waived.
• Estates $250,000 or more, but less than $500,000: $544.00.
• Estates $500,000 or more, but less than $1,000,000: $1,088.00.
• Estates $1,000,000 or more, but less than $2,000,000: $2,538.70.
• For estates worth $7 million or more, the fee can now reach up to $17,770.80, a substantial increase compared to previous years.

The cost for advertising the intention to apply for Probate in Victoria has also increased to $38.00 as of 1 July 2026. This notice must run for 14 days on the Supreme Court of Victoria website. These court fees are separate from any legal fees charged by a solicitor to assist with the probate application.

Will Deposit Fees

From 1 July 2026, the prescribed fee for depositing a Will with the registrar under the Administration and Probate Act 1958 is 1.6 fee units. The fee for the delivery of a deposited Will by the registrar is 2.7 fee units. The value of a fee unit for the financial year commencing 1 July 2025 is $16.81, and fees are adjusted annually. However, no fee is payable if the deposit is due to a legal practitioner’s death or cessation of practice in Victoria.

Digital Assets in Modern Estate Planning

In our increasingly digital world, a significant portion of our lives, from sentimental photos to financial investments, exists online. These ‘digital assets’ are a new frontier in estate planning. Addressing them is essential. While the Wills Act 1997 (Vic) doesn’t explicitly define digital assets, they are generally considered property that can be included in a Will.

Digital assets can encompass:

• Financial Value: Cryptocurrencies, online bank accounts, share trading platforms, online payment systems (e.g., PayPal), and business assets like websites and domain names.
• Sentimental Value: Cloud-stored photos, emails, social media accounts, and online gaming profiles.

The challenge arises because accessing these assets after death can be complex due to privacy laws and platform terms of service. Without explicit instructions, executors may struggle to locate, access, manage, or close these accounts.

Therefore, a modern estate plan for July 2026 should:

• Create an Inventory: Document all digital assets, including user names and passwords, storing this information securely.
• Grant Explicit Authority: Your Will should include specific clauses authorising your Executor to access, manage, and distribute your digital assets. This should explicitly provide them the means to bypass terms of service and engage technical experts if needed.
• Address Powers of Attorney: An EPOA should also include specific clauses authorising your attorney to handle your digital accounts if you become incapacitated.

This proactive approach helps mitigate risks like identity theft, ensures your wishes are followed, and eases the burden on your loved ones.

Superannuation Death Benefits

Superannuation often represents one of an individual’s largest assets, yet it’s treated differently from other assets. While generally not governed directly by your Will (unless specifically directed via a binding death benefit nomination), changes to superannuation legislation can significantly impact the overall wealth transferred to beneficiaries.

From 1 July 2026, new rules are taking effect regarding the taxation of superannuation balances. An additional tax will apply to earnings attributable to total superannuation balances exceeding A$3 million. While the core principle of superannuation death benefits (tax-free for dependents, potentially taxed for non-dependents like adult children) remains, the evolving superannuation landscape impacts the overall value of this asset for estate planning purposes. Understanding these changes and their potential effect on your superannuation is a vital part of comprehensive estate planning.

Ensure Your Plan Remains Current

The dynamic nature of legislation, particularly evident in the federal and state budget changes impacting July 2026, means estate planning is not a one-off task. A Will and associated documents drafted even a few years ago might not fully capture your current wishes or apply the most effective legal and tax strategies. Changes in personal circumstances – marriage, divorce, births, deaths, or significant changes in assets – also necessitate a review.

Engaging with a specialist estate planning lawyer in Melbourne ensures your documents are valid, effective, and tailored to your circumstances, reflecting the legal position as of July 2026. This proactive approach is the most profound gift you can offer your family, providing clarity and security for the future. Act now to review your estate plan and safeguard your legacy.

Sources

1. nationalprobate.com.au
2. supremecourt.vic.gov.au
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34. latitudeaccountants.com.au

The post Crafting Your Legacy: A Detailed Look at Last Wills & Testaments appeared first on Capital Five Partners.

For consultants, IT specialists, engineers, and other professionals providing specialised skills, understanding these rules is not just a matter of compliance—it’s fundamental to wealth management and financial security. Misinterpreting the PSI regime can lead to unexpected tax liabilities, penalties, and the unwinding of carefully planned financial strategies.

This article provides a comprehensive overview of the PSI rules, the tests used to determine their application, and the potential options for restructuring your business affairs to ensure you remain on the right side of the law.

What Exactly is Personal Services Income?

The ATO defines PSI as income that is mainly a “reward for an individual’s personal efforts or skills.” In simple terms, if more than 50% of the income received for a specific contract is for your labour, knowledge, or expertise—as opposed to the supply of materials, equipment, or products—then that income is considered PSI.

This regime is prevalent in industries where the primary value delivered is intellectual and personal, including:

• Information Technology and Software Development
• Engineering and Management Consulting
• Medical and Allied Health Professionals
• Financial Services and Marketing
• Media and Creative Professionals

The core principle behind the PSI rules is to prevent individuals who are, for all intents and purposes, acting like employees from accessing the lower corporate tax rate or splitting income with family members to reduce their overall tax burden. The legislation, found in Part 2-42 of the Income Tax Assessment Act 1997, effectively looks through the company or trust structure and attributes the income directly to the individual who performed the service.

Navigating the PSI Tests: A Step-by-Step Guide

If your business earns PSI, you must determine if the PSI rules apply to you. This is done by working through a series of tests. If you pass a test, your entity is considered a Personal Services Business (PSB), and the PSI rules do not apply for that income year. This means you can operate as a normal business, retaining profits in the company and claiming a broader range of business deductions.

Step 1: The Results Test

The Results Test is the primary and most definitive test for establishing a PSB. It is designed to identify businesses that are contracted to produce a specific outcome for a set price, rather than just being paid for their time. To pass the Results Test for at least 75% of your PSI in an income year, you must satisfy all three of the following conditions:

1. Paid to Produce a Specific Result: The contract specifies an outcome you must deliver. Payment is contingent on achieving this result, not merely for the hours you work.
2. Provide Your Own Tools and Equipment: You are required to supply the primary tools or equipment necessary to complete the work. This must be more than just a laptop if more substantial equipment is essential to the job.
3. Liable for Rectification: You are responsible for correcting any defects in your work at your own expense and without further payment.

Example: An IT consultant in Melbourne is engaged to develop and implement a new CRM system for a client for a fixed fee of $80,000. Her contract states the project deliverables, and she uses her own specialised software and diagnostic tools. A warranty clause requires her to fix any bugs found within six months of deployment at no extra cost. She passes the Results Test.

Conversely, if the same consultant was paid $1,500 per day to “provide IT support” using the client’s systems and under their direction, she would likely fail the Results Test.

Step 2: The 80/20 Rule

If you do not pass the Results Test, you must assess the 80/20 Rule. This rule asks: does 80% or more of your PSI in an income year come from a single client and their associates?

If the answer is yes, the PSI rules will automatically apply. You cannot proceed to the other tests unless you obtain a specific determination from the ATO allowing you to be treated as a PSB.

If the answer is no (i.e., your income is derived from multiple, unrelated sources, with no single client accounting for 80% or more), you can proceed to the final set of tests.

Step 3: The Remaining Tests

If you have less than 80% of your income from one client, you only need to pass one of the following three tests to qualify as a PSB.

A) The Unrelated Clients Test
You pass this test if you receive PSI from two or more clients who are not related to each other or to you, and you have publicly advertised your services. “Publicly advertising” means making your services known to a section of the public (not just a single client) through methods like:
* A public-facing website
* An active LinkedIn profile with service offerings
* Advertising in trade journals or online directories

B) The Employment Test
You pass this test if you either:
* Employ one or more other individuals to perform at least 20% of the market value of the principal work, or
* Have one or more apprentices for at least half of the income year.

The work performed by employees must be the core, “principal” work that generates the PSI, not just administrative or support tasks.

C) The Business Premises Test
To pass this test, you must, at all times during the year, own or lease business premises that are:
* Physically separate from your private residence.
* Physically separate from your clients’ premises.
* Used for your PSI-generating activities more than 50% of the time.

A home office, even a dedicated one, will not satisfy this test. It requires a genuine, external commercial space, such as a leased office in the Melbourne CBD or a dedicated workshop.

The Consequences of Being Caught by the PSI Rules

If you earn PSI and do not qualify as a PSB, the consequences are significant:

1. Attribution of Income: The net PSI is attributed to the individual who performed the services and taxed at their marginal tax rates, regardless of whether the money was left in the company.
2. Limited Deductions: The range of deductions your company can claim against the PSI is severely limited to what an employee could typically claim. This means deductions for the following are generally denied:
   • Payments to a spouse or other associate for non-principal work (e.g., bookkeeping).
   • Rent, mortgage interest, and other occupancy expenses for a home office.
   • Superannuation contributions for associates.
3. PAYG & Superannuation: Your company will likely have obligations to withhold tax (PAYG) from payments made to you and pay the Superannuation Guarantee on the attributed PSI.

Proactive Structuring and Legal Advice

Navigating the PSI regime requires careful, proactive planning. Waiting for an ATO audit is a high-risk strategy. For professionals in Melbourne operating through a corporate structure, consider the following:

• Contract Review: Ensure your client contracts are drafted to reflect a results-based relationship wherever possible. Emphasise deliverables, liability for defects, and your provision of equipment.
• Diversify Your Client Base: Actively market your services to avoid tripping the 80/20 rule. A broad client base is one of the strongest indicators of an independent business.
• Consider Genuine Employment: If your workflow allows, hiring another skilled professional to perform a substantive part of the principal work can help you meet the Employment Test.

The PSI rules are notoriously complex, and their application depends entirely on your individual circumstances. Getting it wrong can have a severe financial impact. Seeking expert legal and financial advice is not a cost—it’s an investment in the security and longevity of your professional practice.

Our team of wealth management and tax law specialists in Melbourne has extensive experience in advising contractors and consultants on the PSI regime. We can assist with reviewing your current arrangements, advising on restructuring, and ensuring your business is built on a compliant and tax-effective foundation. Contact us today for a confidential discussion.
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The Legislative Overhaul: A Shift in Investment Foundations

Historically, negative gearing has allowed property investors to offset net rental losses against other forms of income, such as salary and wages, thereby reducing their overall taxable income. Similarly, the 50% CGT discount has significantly reduced the tax payable on capital gains for assets held for more than 12 months. The new legislation fundamentally alters these long-standing provisions, with changes set to commence on July 1, 2027.

Key Implications for Real Estate Investors

The recent legislative changes present several critical implications for Australian real estate investors:

1. Negative Gearing Limited to New Residential Builds

From July 1, 2027, the ability to negatively gear residential properties will be strictly limited to new builds. This means that investors purchasing established residential properties after a specific cut-off date will no longer be able to claim rental losses against their other assessable income. This policy aims to redirect investment towards increasing housing supply.

2. Grandfathering Provisions for Existing Investments

A significant relief for current property owners is the implementation of grandfathering provisions. Properties held at 7:30 pm AEST on May 12, 2026 (Budget night), including those under contract awaiting settlement at that time, will retain their negative gearing entitlements under the existing rules until they are sold. This ensures that arrangements for taxpayers who have made investment decisions based on the previous framework will not change for those specific assets.

3. New Treatment of Rental Losses for Established Properties

For established residential properties purchased after 7:30 pm AEST on May 12, 2026, investors will find their ability to offset rental losses significantly curtailed from July 1, 2027. These losses can only be deducted from other residential rental income (including from other rental properties) or against a capital gain arising from the sale of a rental property. Any excess losses can be carried forward to offset residential property income in future years. This marks a fundamental shift from offsetting against personal income like salary and wages.

4. Replacement of the 50% Capital Gains Tax Discount

The long-standing 50% CGT discount for individuals, trusts, and partnerships will be replaced with a system of cost base indexation and a 30% minimum tax rate on capital gains. This means that only “real” capital gains, adjusted for inflation, will be subject to tax. The new rules apply to gains accruing after July 1, 2027.

5. Capital Gains Tax Grandfathering and Accrued Gains

Similar to negative gearing, there are transitional arrangements for CGT. The 50% discount will still apply to gains accrued before July 1, 2027. This means investors will need to be able to identify and separate gains made before and after this date for tax purposes. For new builds, investors will have the option to choose between the new and old CGT arrangements from July 1, 2027.

6. Increased Focus on New Housing Supply

The legislative changes explicitly aim to encourage investment in new housing. By limiting negative gearing to new builds, the government is incentivising investors to contribute to increasing the overall housing stock, which is intended to improve affordability for first-home buyers and ease rental market pressures.

7. Potential Shift in Investment Strategy Towards Positive Gearing

With the significant reduction in negative gearing benefits for established properties, investors may increasingly favour properties that are positively geared (where rental income exceeds expenses) or those with strong prospects for capital growth, even without immediate tax deductions. The profitability of an investment will rely more heavily on rental yields and genuine capital appreciation rather than tax-driven benefits.

8. Impact on Self-Managed Super Funds (SMSFs)

A key amendment secured during the parliamentary passage of the bill involves Self-Managed Super Funds (SMSFs). The legislation bans the use of Limited Recourse Borrowing Arrangements (LRBAs) for residential property by SMSFs. While existing LRBAs will not be affected, this removes a common mechanism used by SMSFs to leverage into residential real estate and brings SMSF borrowing rules for residential property in line with other super funds.

9. Strategic Review for Properties Purchased Between May 2026 and June 2027

Investors who purchased established residential properties between 7:30 pm AEST on May 12, 2026, and June 30, 2027, face a unique transitional period. These properties can be negatively geared during this interim period but will lose this benefit from July 1, 2027. This necessitates a careful review of the financial viability and long-term strategy for such investments.

10. Exemptions and Carve-outs

It is important to note that commercial property and other asset classes, such as shares, remain unaffected by the negative gearing changes. Furthermore, specific exemptions to the negative gearing changes will be available for private investors who support government housing programs, such as the provision of affordable housing. There have also been carve-outs and increased thresholds for small businesses, startups, and testamentary trusts regarding CGT, reflecting the government’s intention to support these sectors.

Looking Ahead: Adapt and Strategise

These reforms represent a significant recalibration of property investment incentives in Australia. While the government anticipates positive outcomes in housing supply and affordability, investors must adapt their approaches. The shift away from broad negative gearing benefits for established properties, coupled with changes to CGT, underscores a move towards a more fundamental investment rationale where profitability is driven by genuine returns rather than primarily tax advantages.

For Australian real estate investors, the immediate priority should be a thorough assessment of existing portfolios and future investment plans in light of these new rules. Consulting with financial advisors, accountants, and legal professionals is crucial to understand the specific implications for individual circumstances and to develop robust, compliant, and profitable strategies in this new regulatory environment. The landscape has changed, and successful investing will require informed decisions and proactive planning.

Sources

1. williambuck.com
2. treasury.gov.au
3. knightgroup.com.au
4. ato.gov.au
5. budget.gov.au
6. pm.gov.au
7. financialstandard.com.au
8. brokernews.com.au
9. smartpropertyinvestment.com.au
10. thedailyaus.com.au

The post Negative Gearing & CGT Changes: Must-Knows for Australian Real Estate Investors appeared first on Capital Five Partners.

This article explores the compelling tax benefits of incorporating a testamentary trust into your estate plan, offering practical insights for those seeking to secure their legacy in the most effective manner possible.

Testamentary Trusts: A Cornerstone of Modern Estate Planning in Melbourne

A testamentary trust is not a separate legal entity created during one’s lifetime; rather, it is a trust established within a will that comes into existence upon the will-maker’s (testator’s) death. Instead of assets passing directly to beneficiaries—a process fraught with potential risks and tax inefficiencies—they are instead transferred into the trust. A trustee, appointed by the testator in the will, manages these assets on behalf of the beneficiaries.

For residents of Melbourne, a city with a dynamic and often complex economic environment, this structure offers a tailored solution. It allows for the managed release of inheritances, protecting assets from creditors, legal claims, or the matrimonial property disputes of beneficiaries. However, the most significant and immediate advantages are often found in the realm of taxation.

The Unmatched Tax Advantage: Income Distributions to Minors

One of the most compelling reasons to establish a testamentary trust in Australia is the preferential tax treatment afforded to income distributions made to minor beneficiaries (children under 18).

Under normal circumstances, income earned by a minor, such as from a family trust established during a person’s lifetime (an inter vivos trust), is subject to punitive tax rates. The current rules, designed to prevent adults from diverting income to their children to avoid tax, see any annual income over a very low threshold ($416) taxed at the highest marginal rate (currently 45%).

However, income distributed to a minor from a testamentary trust is treated as “excepted trust income” under Division 6AA of the Income Tax Assessment Act 1936. This means it is taxed at normal adult marginal rates, just as if the minor were an adult taxpayer.

This distinction is profound. It allows each minor beneficiary to receive up to the full tax-free threshold—currently $18,200 per annum—entirely tax-free. Income beyond this threshold is then taxed at progressive adult rates, which are significantly lower than the penalty rates applied to non-excepted income.

Practical Implication: Consider a scenario where a portion of your estate is generating $40,000 of annual income. If this were left to your two young children directly or through a standard family trust, the vast majority of that income would be lost to tax at the highest rate. Through a testamentary trust, that same $40,000 could be distributed equally ($20,000 to each child), resulting in a minimal tax liability, as the bulk of the income falls within their individual tax-free thresholds. This preserves the capital and allows it to be used for the children’s education, maintenance, and general benefit as intended.

It is important to note a key compliance point: these concessional tax rates apply only to income generated from the assets of the deceased’s estate. Legislative changes were introduced to prevent parties from injecting unrelated assets into a testamentary trust to take advantage of this tax treatment for minors.

Strategic Income Splitting for Enhanced Family Wealth

The tax benefits of a testamentary trust extend beyond just minors. The discretionary nature of most testamentary trusts provides the trustee with the flexibility to stream income and capital gains among a wide range of potential beneficiaries in the most tax-effective way each financial year.

Beneficiaries of a discretionary testamentary trust can include the testator’s spouse, children (of all ages), grandchildren, and even other family members or entities. Each year, the trustee can assess the financial circumstances of each beneficiary and distribute income accordingly.

For a Melbourne family, this could mean:

• Supporting University Students: A grandchild at university with little or no other income can receive a distribution, utilising their tax-free threshold and low marginal tax rates to fund their studies and living expenses.
• Assisting a Low-Income Spouse: Income can be streamed to a spouse who is not working or has a low income, rather than to a spouse already in a high tax bracket.
• Managing Capital Gains: Capital gains realised from the sale of trust assets can be streamed to a beneficiary with available capital losses, potentially negating any Capital Gains Tax (CGT) liability for that financial year.

This ability to strategically “sprinkle” income among beneficiaries with lower marginal tax rates can dramatically reduce the overall tax burden on the family’s inherited wealth, allowing the capital to grow more effectively over time.

A Practical Example: The Power of a Testamentary Trust in Action

Let’s consider a hypothetical Melbourne-based couple, David and Sarah, who have a combined estate valued at $3 million, including their family home, an investment property, and a share portfolio. They have three children: Emily (25, a high-income professional), Tom (19, a university student), and Chloe (16, in high school).

Without a Testamentary Trust: If David and Sarah were to pass away leaving their assets directly to their children in equal shares, Emily would inherit $1 million, adding to her already high taxable income. Tom and Chloe would also receive their shares, but with Chloe being a minor, her inheritance would likely be held by a guardian, and any income generated would be subject to those punitive minor tax rates.

With a Testamentary Trust: David and Sarah’s will establishes three separate testamentary trusts, one for each child. The investment property and share portfolio are placed into these trusts. The annual income of $90,000 is generated.

The trustee can now make the following distributions:
* Chloe (16): Receives $20,000. The first $18,200 is tax-free, with a small amount taxed at the lowest marginal rate. This income can be used for her school fees and other expenses.
* Tom (19): Receives $30,000. His income is also taxed at low adult rates, providing him with financial independence while he studies.
* Emily (25): Receives $40,000. While she pays tax at her marginal rate, the family’s overall tax outcome is vastly superior to the alternative. The trustee could even decide to distribute less to Emily and retain income in the trust, to be paid out in a future year when her income is lower.

This strategic approach not only saves the family tens of thousands of dollars in tax each year but also protects each child’s inheritance from any personal or professional liabilities they may face.

Navigating Compliance and Legal Obligations in Victoria

While powerful, testamentary trusts are not a “set and forget” solution. They are subject to legal and financial reporting obligations. The trustee has a fiduciary duty to act in the best interests of the beneficiaries and must adhere to the terms of the trust as set out in the will.

In Victoria, this includes:
* Annual Tax Returns: The trust must be registered with the Australian Taxation Office (ATO) and file an annual tax return.
* Trustee Meetings and Resolutions: The trustee must keep records of decisions made regarding asset management and income distributions.
* Adherence to the Trustee Act: The Trustee Act 1958 (Vic) governs the powers and responsibilities of trustees in Victoria, setting standards for investment and management.

Engaging a professional trustee or ensuring the appointed family member has access to expert legal and accounting advice in Melbourne is paramount to ensuring the trust is managed effectively and compliantly.

Asset Protection: A Legacy Beyond Tax Benefits

While the tax advantages are a primary driver for many, the asset protection qualities of a testamentary trust cannot be overstated. Assets held within the trust are not owned by the beneficiaries, meaning they are generally protected from:
* Bankruptcy: If a beneficiary runs into financial difficulty or becomes bankrupt, creditors cannot typically access assets held in the trust.
* Family Law Disputes: In the event of a beneficiary’s divorce or separation, the Family Court may have difficulty treating the trust assets as part of the divisible marital property pool, particularly in a discretionary trust structure.

This ensures that your legacy remains for the benefit of your intended beneficiaries, insulated from the unforeseen challenges life may bring.

Conclusion: Secure Your Family’s Future with Expert Guidance

For families in Melbourne seeking to provide a lasting legacy, the testamentary trust offers an unparalleled combination of asset protection, flexibility, and tax efficiency. By allowing minors to be taxed as adults on their distributions and providing a vehicle for strategic income splitting, these trusts ensure that more of your hard-earned wealth is preserved for the next generation.

The establishment and management of a testamentary trust require careful consideration and expert legal drafting. We recommend seeking advice from a specialist wealth management and estate planning lawyer to determine if a testamentary trust is the right solution for your unique circumstances and to ensure your will is structured to achieve your long-term financial goals.

The post Testamentary Trusts: Tax Advantages for Families and Minors appeared first on Capital Five Partners.

Understanding Will Challenges in Victoria

In Victoria, a will can be challenged on two main grounds:

1. Invalidity: This is where the will itself is claimed to be invalid. This could be due to a number of reasons, including:
   • Lack of testamentary capacity: The person making the will was not of sound mind.
   • Undue influence: The person making the will was coerced or pressured.
   • Fraud or forgery: The will is not a genuine document.
2. Family Provision Claim: This is where a person claims that the deceased had a moral obligation to provide for them in their will, and that the will fails to make adequate provision for their proper maintenance and support. This is the most common type of will challenge.

This article will focus on Family Provision claims.

Who is Eligible to Make a Family Provision Claim?

The Administration and Probate Act 1958 (Vic) sets out who is eligible to make a Family Provision claim. The list of eligible persons includes:

• Spouse or domestic partner of the deceased.
• Former spouse or domestic partner who would have been able to bring a claim under the Family Law Act 1975 (Cth) and has not remarried.
• A child of the deceased (including adopted or step-children).
• A grandchild of the deceased.
• A person who was, or was likely to be, in a registered caring relationship with the deceased.
• A person who was a member of the deceased’s household.

It is important to note that simply being on this list does not automatically mean you will be successful in a claim. The court will consider a range of factors to determine whether you have a genuine need for provision from the estate.

Time Limits for Contesting a Will in Victoria

There are strict time limits for making a Family Provision claim in Victoria. An application must be made within six months from the date of the grant of probate or letters of administration.

In some limited circumstances, the court may grant an extension of time, but this is not guaranteed. It is therefore crucial to seek legal advice as soon as possible if you are considering contesting a will.

The Process of Contesting a Will

The process of contesting a will in Victoria generally involves the following steps:

1. Initial Consultation: Seek advice from a lawyer specialising in wills and estates to assess the strength of your claim.
2. Negotiation: Your lawyer may attempt to negotiate a settlement with the executor of the will and other beneficiaries.
3. Commencing Court Proceedings: If a settlement cannot be reached, your lawyer will file an application with the Supreme Court or County Court of Victoria.
4. Mediation: The court will usually order the parties to attend a mediation to try to resolve the dispute.
5. Trial: If the matter is still not resolved, it will proceed to a trial where a judge will make a final decision.

Evidence Required to Support Your Claim

To be successful in a Family Provision claim, you will need to provide evidence to the court that demonstrates:

• Your financial position: This includes your income, assets, liabilities, and financial needs.
• The nature of your relationship with the deceased: The court will consider the closeness of your relationship and whether you were dependent on the deceased.
• The size of the estate: The court will consider the total value of the estate and the claims of other beneficiaries.
• Any contributions you made to the deceased’s estate or welfare: This could include financial or non-financial contributions.

Case-Type Examples

Example 1: The Adult Child Left Out of a Will

An adult son is left with a very small portion of his father’s multi-million dollar estate, with the majority going to his sister. The son has a young family and a large mortgage, while his sister is financially secure. In this case, the son may have a strong claim for a larger portion of the estate, as the will does not make adequate provision for his proper maintenance and support.

Example 2: The Carer

A woman spends ten years caring for her elderly and unwell neighbour. The neighbour had promised to leave her a significant inheritance in his will, but when he passes away, she discovers she has been left with nothing. In this situation, the carer may be able to make a Family Provision claim on the basis that she was a person who was in a caring relationship with the deceased and had a moral claim on the estate.

Settlement Options

The vast majority of will disputes are settled out of court. This is because litigation can be expensive, time-consuming, and emotionally draining. The most common settlement options are:

• Negotiation: The parties agree to a settlement between themselves, usually with the assistance of their lawyers.
• Mediation: An independent mediator helps the parties to reach a mutually acceptable agreement.

Costs of Contesting a Will

The costs of contesting a will can be significant. Legal fees will vary depending on the complexity of the case and the time it takes to resolve. In many cases, if a Family Provision claim is successful, the court will order that the claimant’s legal costs be paid out of the estate. However, this is not always the case, and if the claim is unsuccessful, the claimant may be ordered to pay the estate’s legal costs.

Conclusion

Contesting a will in Victoria is a complex legal process with strict time limits. If you believe you have been unfairly left out of a will or have not been adequately provided for, it is essential to seek expert legal advice as soon as possible. A lawyer specialising in wills and estates can help you understand your rights, assess the strength of your claim, and guide you through the process of challenging a will.

Disclaimer: This article is for informational purposes only and does not constitute legal advice. You should seek legal or other professional advice before acting or relying on any of the content.

The post Contesting a Will in Victoria: Eligibility, Deadlines, Costs appeared first on Capital Five Partners.

Many executors in Melbourne and across Victoria find themselves asking: “How long will this take?” The answer is not always straightforward. While a standard application can be processed relatively quickly, various factors can cause significant delays.

This guide provides a comprehensive overview of the probate timeline in Victoria, outlines common obstacles, and offers practical advice on how to expedite the process.

What is a Grant of Probate?

A Grant of Probate is an official declaration from the Supreme Court of Victoria that validates a deceased person’s will and confirms the appointed executor’s authority to act. Financial institutions, the Land Titles Office, and other asset holders require this document before they will release control of the estate’s assets. It serves as legal proof that the executor has the right to collect assets, pay outstanding debts, and ultimately distribute the inheritance to the beneficiaries named in the will.

Without this Grant, the estate’s assets are effectively frozen, and the administration process cannot proceed.

The Standard Probate Timeline in Victoria

The probate process can be broken down into three main stages. While timelines can vary, a well-prepared and straightforward application typically takes between 4 and 12 weeks from start to finish.

Stage 1: Information Gathering and Preparation (1–4 Weeks)

This initial phase is the executor’s responsibility and is foundational to a smooth application. The duration depends on the complexity of the estate and the availability of documents.

Key tasks include:
* Locating the Original Will: You must have the original, signed will. A copy is generally not sufficient and will complicate the application significantly.
* Obtaining the Death Certificate: The official certificate from Births, Deaths and Marriages Victoria is required.
* Identifying Assets and Liabilities: This involves creating a comprehensive inventory of everything the deceased owned and owed. This includes bank accounts, real estate, shares, superannuation, vehicles, and personal belongings, as well as mortgages, loans, and credit card debts.

Stage 2: Advertising Your Intention and Filing the Application (2 Weeks)

Before you can file for probate, you must advertise your intention to do so.

• Online Advertisement: An online notice must be published on the Supreme Court of Victoria’s probate website. This notice informs the public, potential creditors, and any other interested parties of your intention to apply.
• 14-Day Waiting Period: The law requires a minimum 14-day waiting period after the notice is published before the application can be filed with the Court. This gives any objectors time to come forward.

During this waiting period, your legal representative will finalise the application documents, including the executor’s affidavit, which details the estate’s assets and liabilities and swears that the executor will administer the estate according to the law.

Stage 3: The Supreme Court’s Review and Approval (2–6 Weeks)

Once the application is filed, it is reviewed by the Registrar of Probates.

• Standard Applications: If the application is complete, accurate, and straightforward, the Registrar will typically process and approve it within 2 to 4 weeks.
• Complex or Inaccurate Applications: If the Court has questions or requires further information (known as a “requisition”), the process is paused. Delays at this stage can add weeks or even months to the timeline.

Common Obstacles and How to Troubleshoot Them

Delays are most often caused by issues with the will itself or the application documents. Understanding these common pitfalls is the first step to avoiding them.

1. Issues with the Will

An invalid or poorly drafted will is a primary source of delay.
* Problem: The will is not signed correctly, is not properly witnessed, or contains unclear wording. Older wills are particularly susceptible to formal errors.
* Solution: If you have any doubts about the will’s validity, seek legal advice immediately. An experienced solicitor can assess the document and prepare a supporting affidavit to address any “informal” aspects, a process which may save the will from being rejected.

2. Incomplete or Inaccurate Application Paperwork

The Supreme Court demands absolute precision.
* Problem: Mismatched names, incorrect addresses, or inaccurate asset valuations are common reasons for the Court to issue a requisition. The information in the application must perfectly match all supporting documents.
* Solution: Double-check every detail before filing. Engage a professional to prepare the documents. Their familiarity with the Court’s stringent requirements is invaluable for ensuring accuracy and avoiding requisitions.

3. Court Requisitions

A requisition is a formal request from the Court for clarification or additional documentation.
* Problem: The Registrar may question an asset’s valuation, ask for more detail about the deceased’s family members, or require an explanation for an irregularity in the will.
* Solution: Respond to requisitions promptly and completely. Vague or incomplete answers will only lead to further delays. A probate lawyer can help you interpret the Court’s request and formulate a precise and satisfactory response.

4. Challenges to the Will (Caveats)

A person with a legitimate interest in the estate can lodge a “caveat” with the Court.
* Problem: A caveat effectively stops the probate application in its tracks until the dispute is resolved. This is common where a family member feels they have been unfairly left out of the will.
* Solution: If you anticipate a dispute or a caveat is lodged, it is crucial to seek immediate legal representation. This is no longer a simple administrative process; it has the potential to become complex litigation.

How to Speed Up the Probate Process

While you cannot control the Court’s processing times, you can take proactive steps to ensure your application moves through the system as efficiently as possible.

• Act Quickly: Begin gathering the necessary documents—the will, death certificate, and financial records—as soon as possible.
• Be Thorough: Create a detailed list of all assets and liabilities. The more organised you are, the faster your legal team can prepare the application.
• Engage Experts Early: Don’t wait for problems to arise. Instructing a wealth management legal firm from the outset is the single most effective way to prevent delays. A specialist ensures the application is prepared correctly the first time, anticipates potential issues, and manages all communication with the Court.
• Communicate with Beneficiaries: Keep all beneficiaries informed about the process and timelines. Transparency can help manage expectations and reduce the likelihood of disputes.

When Should You Seek Professional Help?

While it is possible for an executor to apply for probate themselves, it is rarely advisable. The risks of costly errors and delays are high.

You should always seek professional legal assistance if:
* The estate has significant or complex assets (e.g., a business, a self-managed super fund, or overseas property).
* The will is old, appears damaged, or you have concerns about its validity.
* There is potential for conflict or disputes among beneficiaries.
* You, as the executor, feel overwhelmed, live interstate or overseas, or simply lack the time to manage the process effectively.

Engaging a legal professional is not an admission of inability; it is a prudent step to ensure the estate is administered efficiently, correctly, and in accordance with your legal duties as an executor.

Your Partner in Estate Administration

Navigating the probate process in Victoria requires diligence, precision, and a deep understanding of the Supreme Court’s requirements. By being prepared and seeking expert guidance, you can ensure a smoother, faster process, allowing you to honour your duties as executor and provide for the beneficiaries without unnecessary delay.

If you are an executor needing assistance with a probate application, contact our specialist wealth management legal team today. We provide expert guidance to clients across Melbourne and Victoria to ensure a seamless and efficient estate administration process.

The post Probate in Victoria: How Long It Takes and How to Speed It Up appeared first on Capital Five Partners.