When Mark’s wife approached me, she had been to two accountants before me. She knew intuitively there was a solution to her problem, but she didn’t know what it was. But she was not prepared to give up.
She read my book and thought what’s to loose, “I will ring Allan”, which she did. She told me her story. Her husband had been in the building trade but experienced life threatening problems. His business suffered and made massive losses. They made good the losses by repaying all debts. It was hard but they were determined not to fail. However in the process his building entity was liquidated – I am not sure who took that action as the claims were paid in full.
When I looked into it, her husband’s business was traded through a trust. The corporate trustee had been placed into liquidation. Everyone she spoke to said the losses were lost as the entity no longer existed. This was wrong and showed a complete misunderstanding of trust law. A trust cannot be liquidated as it is not an entity. It is an agreement governed by a deed to do certain things, with a trustee running the business in accordance with that deed. The trustee has a right of indemnity against trust assets. But no one else has this right. Neither a creditor nor liquidator has this right. The husband had taken over as trustee after the trustee had been placed into liquidation.
So in fact the solution was extremely simple and stared everyone in the face. I updated the tax returns for the trust picking up all of the personal amounts paid by husband and wife and crystalised the carried forward tax losses. Then I cascaded income from the new businesses into the old trust. This made the income tax free. I then re-imbursed the loans the husband and wife had made to the trust to pay creditors to settle its liabilities. The net effect was the recoupment of over $500,000 in tax losses and the equivalent of over $300,000 in tax savings. The savings were higher due to the remission of interest the ATO claimed on some personal debt the clients had.
We needed to request extension of the ability to amend tax returns that were over 4 year period review period, which we did. I simple and easy result. I cannot understand why the previous people she spoke to did not see this solution. I was the third accountant she spoke to.