Publications and News

Accountants and lawyers: Friends or adversaries?

6 February 2018

This article was published in this month's edition of the Law Society Journal of NSW.

You can’t stand Harvey. He’s an accountant in the same suburb, and you have some mutual clients. Harvey is rude, arrogant and full of a sense of his own importance. He has little respect for lawyers generally and seems to think himself superior to you. In the past you have lost clients because Harvey has said bad things about you.

Charlie and Chloe and the business succession

You have instructions from Charlie to act for him on his family company’s sale of a surplus business building for $750,000. Charlie tells you he is winding down and handing over his business to his daughter Chloe.

You ask Charlie if he has taken accountant’s advice and your heart somewhat sinks when he tells you that he has spoken to Harvey about it and everything is under control.

Working with Harvey

Harvey calls to confirm that Charlie is his client and says not to finalise the transaction without consulting him. With gritted teeth you say you will write this down in your diary.

Things go awry ...

When the time comes, you find that Harvey has departed on what you are told is a very prestigious golf tournament and is not to be disturbed. You ask if Harvey left instructions about Charlie’s matter and you are told no. You can’t delay settlement so you go ahead.

The property is subject to a mortgage so you organise with the bank to pay it out from the sale proceeds. Charlie had said he could organise something else – that Harvey mentioned something about organising something else – but you said, “Why bother? It’s too easy.”

Harvey is back

Sometime later you get a call from Harvey – he’s back and he’s angry. “Why on earth,” he splutters, “did you pay that mortgage off like that? I told Charlie he should sell some shares to do this. You’ve cost Charlie thousands in tax – you’ll be hearing from his lawyers about this!” You say: “What on earth are you on about? And for goodness’ sake calm down. Anyway, you were meant to leave instructions but you didn’t!”

Your first sting

It turns out that the debt secured by the mortgage was a personal debt, so the payment of the net sale proceeds to the mortgagee was effectively a payment to Charlie and therefore a dividend under section 44 of the Income Tax Assessment Act 1936.

Your second sting

You also find out that Charlie qualified for the 15-year small business CGT relief under Division 152 of the Income Tax Assessment Act 1997 and that the capital gain – $500,000 – could have been paid first to Charlie tax-free and secondly into his super fund, which could then pay him a taxfree pension from tax-free investments.

There are significant hoops to jump through to qualify for the 15-year small business CGT relief, including that the sale must be ‘in connection with’ the relevant person’s retirement – which, in Charlie’s case, it was. Harvey was quite proud of his specialised knowledge in the area. You gloomily reflect, even if it was really Harvey’s fault.

It’s Harvey’s turn to be stung

Although Charlie won’t talk to you any more, Chloe is sympathetic and keeps in touch enough to tell you that Harvey arranged for Charlie to transfer his shares in the same company to Chloe – and how clever he is because there’s no stamp duty.

You point out that it’s not clever because duty on share transfers has been abolished since 1 July 2016 (s 34) and ask: “What value of real estate does the company still own?” She says: “Still over $5 million.” “That’s good,” you reply, “and did Harvey happen to mention you’d have to pay duty at normal property rates because landholder duty still applies?”

For a bit, Chloe is unsure what you mean, but when she absorbs it she storms off in a fury to make the obvious call.

When Harvey calls, it is obvious he has no idea about landholder duty. When he calms down you explain that under chapter 4 of the Duties Act 1997, the transfer of a majority shareholding in a private company owning land valued in excess of $2 million is subject to duty at normal property transfer rates – so the transfer of all the shares from Charlie to Chloe will attract landholder duty of $235,500.

The phone goes down with a bang – and you feel a bit better.

Take away points

1 Solicitors and accountants should be friends.

2 Every transaction involving a company has potential tax issues.

3 Landholder duty remains an issue under the Duties Act 1997 (NSW).


This article is general information only and should not be relied on without obtaining further specific information.

Jim Main Business Lawyer / Director

Jim Main practices in business law generally with an emphasis on business succession, estate planning and tax. Jim has a Diploma in Law, is a.. Learn more about Jim Main

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