Tie me kangaroo (Trademark) down sport !

Well I never thought I would see a large company like Qantas slip up on a matter of their core branding identity.

 

It seems that the lessons we all need to learn in business is that despite public perceptions unless we secure by registration, a valid Trademark in all applicable classes, a competitor might just take advantage of it. Take a look at the case study below and let us know if this triggers any concern in your company.

Qantas uses a variety of “kangaroo” trade marks as part of its business, including the “kangaroo tail fin” logo below which it registered in Australia in 1996 for advertising, marketing and merchandising services and financial, investment and banking services associated with the use and promotion of credit cards and charge cards (Registration No. 711454):

In a recent Federal Court case, Qantas has unsuccessfully opposed an application by Mr Luke Edwards to register the following “kangaroo t-shirt” logo as a trade mark:

Mr Edwards operates an online retail store selling a range of goods including clothing and apparel. In 2010, Mr Edwards applied to register his “kangaroo t-shirt” logo above as a trade mark, for use in relation to clothing; footwear; headwear; shirts; T-shirts. At the time, Mr Edwards’s online store offered t-shirts branded with his “kangaroo t-shirt” logo.

Qantas formally opposed the registration of the “kangaroo t-shirt” logo on a number of grounds but the Delegate of the Registrar of Trade Marks found in favour of Mr Edwards.

Qantas appealed the decision to the Federal Court, claiming that the “kangaroo t-shirt” trade mark was deceptively similar in appearance to Qantas’s existing Trade Mark Registration No. 711454 for the “kangaroo tail fin” logo.

Qantas also claimed that the goods/services covered by the two marks were closely related, (Meaning that Mr Edwards’s clothing; footwear; headwear; shirts; T-shirts were closely related to Qantas’s advertising, marketing and merchandising services.) Go figure!

Qantas also claimed that it had a strong reputation in Australia in relation to various registered and unregistered “kangaroo” trade marks it had used for many years and, because of this reputation, Mr Edwards’s use of his “kangaroo t-shirt” trade mark would be likely to deceive or confuse consumers. Qantas argued that consumers would simply see Mr Edwards’s “kangaroo t-shirt” logo on clothing as an extension of the Qantas brand.

The Federal Court dismissed both grounds of opposition and found in favour of Mr Edwards.

The Court held that Qantas and Mr Edwards’s trade marks were not deceptively similar in appearance, as each of the marks has a separate, distinctive element apart from a kangaroo. The Court also held that the goods/services covered by the two marks were not closely related. The Court noted that Qantas’s advertising, marketing and merchandising services were no more or less related to Mr Edward’s clothing; footwear; headwear; shirts; T-shirts than ‘any other goods or services that can be advertised, marketed or merchandised’ and that there was, therefore, no close relationship between the two.

In assessing Qantas’s reputation in its various “kangaroo” trade marks, the Court found that two of these “kangaroo” marks ‘would have been recognised by a substantial number of ordinary members of the public as marks denoting [Qantas’s] airline services’. However, the Court determined that there was no likelihood that consumers would be deceived or confused on seeing Mr Edwards’s “kangaroo t-shirt” trade mark used for clothing; footwear; headwear; shirts; T-shirts given the differences between the marks.

Qantas has now filed a new application for the “kangaroo” logo below covering a wide range of goods/services in 15 classes including various items of clothing (No. 1703712). Mr Edwards has opposed this application and it will be interesting to see the outcome of these proceedings.

This case highlights the importance of considering the different types of marks which are important to your business. In addition to registering brand names as trade marks, logos and other types of trade marks are also registrable and may be just as valuable.

I must say I am surprised that Mr Edwards did succeed but on a close review the logo is distinctly different. I wonder if it is a case of “the horse has bolted”. Make sure you d not find your business in the same predicament and remember that registration is a “priority right”. The first in time to register generally wins. cheers

 

Family Constitutions – The Rules

I have a saying that as soon as a parent passes away the children revert to how they felt when they were six years old. The rules as imposed by the parent often go out the window. Good communication between family members is vitally important when faced with business and investment decisions arising from an estate or for the longer term in a family company.

To create a formal document to govern the future decision making by the family group is optimal but often difficult to achieve. So how should you go about it and what level of documentation is required.

Firstly, if the entity that has the money and the assets is a company or a trust, the formal document governing management can be amended to accommodate the “rules” and it will be legally binding. A “family agreement” is a less formal way of achieving the goal but can be highly effective.

A  family business must make hard decisions each day to be successful and by adding a family dynamic it can be just that much harder to get a good outcome. The key to a family constitution is that the procedures are in place to enable good decision making to happen.

To have a successful business the business leaders need to adopt a strong Code of Conduct to build a brand and engage with the employees.This applies to all family members who want to be involved. On the same basis, a constitution can set out a method by which the shareholders plan to create capital and pay dividends according to sound policy. This might include retained earnings and limits on capital expenditure in any financial year, with a keen eye on the strategic growth plan for the business. These guidelines encompass communication between family members, confidentiality, dealing with employees and social media.

So how can you get there? By creating a platform for discussion and having independent advice on the process to build a skeleton of rules, great things can be achieved. Almost akin to a mediation a guiding hand can build on strengths and eliminate conflict by having a strong focus on shared benefits. To build harmony the shareholders need to accept that there must be a sensible way to resolve conflicts built into the rules. This might include regular meetings and agenda setting to identify areas of potential conflict, as well as acceptance of majority voting decisions on some matters, whilst reserving the right for a unanimous vote on others. A great start is to include an independent advisory board who can add professional skill to the culture of decision making.

The single driver is to ensure that the strategic plan as agreed from the outset is and remains the focus of the group. Profit is not always king but an important element of any measure of success. With profit comes choices and the ability to accommodate a wider set of goals. A sustainable business over the generations is a major milestone and having clear conflict resolution methods will generally enhance this position.

Life teaches us that there is always an end to things and planning for an exit by all or by one, is an essential part of the strategy. By getting agreement on a fair and sensible solution in times where an exit is unplanned or must happen for the good of the business, it is more likely all parties will benefit in maintaining capital value and profitability.

It is extremely challenging at times when family members want to or need t transition out of the business. A Family Constitution can set a framework for stepping through this succession process to ensure fair value for the leaver and for the continuing proprietors.Education, key performance indicators and philanthropic measures can all be built into a family Agreement to enable clear goals as well as being a dynamic process ope to change. The aim should always be for continual improvement. Ask us how we can create your Family Constitution today!

International Update

International Tax Changes

I am constantly intrigued with the tax changes in other jurisdictions around the world. As a member of the Society of Trust and estate Lawyers we see a number of administrations that cross international borders including trusts controlled by resident Australian taxpayers.

 

Take a look at some of the recent changes of disclosure in member countries to the Hague Conventions on tax and succession.

FRANCE: Public access to trusts register is provisionally suspended pending hearing on privacy challenge

France’s Conseil d’Etat has suspended the public’s recently created right to view the online register of trusts that have connections with France, pending a full hearing at the constitutional court (CC). The CC is to determine whether public access to the register is a proportional measure under the French constitution. The case results from the appeal of an American citizen who claims that this register runs counter to the right to privacy. On 27 June STEP stated its opposition to public access to the trust register, noting that the data was supplied for tax purposes in good faith, and with no permission for it to be made public.

SWISS BANKING: UBS clients withdraw funds as end of secrecy approaches

Clients based in emerging markets, especially Latin America, have withdrawn CHF2.3 billion (approximately USD2.4 billion) from UBS bank accounts, according to press coverage of the Swiss bank’s most recent quarterly report. The bank’s management expects the outflows to continue for the rest of 2016 and into 2017 as emerging market countries implement voluntary disclosure programmes in anticipation of the full implementation of the OECD’s automatic exchange of information.

JERSEY: Trust law soon to be amended again

An expert at international law firm Ogier examines potential changes to Jersey’s trust law currently in the pipeline. A recently completed consultation centred on amendments clarifying that there is no need for the trust to have a beneficiary at all times during its existence; the rights of beneficiaries to information in respect of the trust; reservation of powers by a settlor; arbitration; retrospective approval of self-contracting by trustees; extended indemnity provisions for departing trustees; accumulation and retention of income in trusts; power of the Royal Court to vary a trust; and others.

MAURITIUS: Ultra-wealthy investors to be granted five-year ‘tax holiday’

Mauritius’ 2016–2017 budget introduces several reforms intended to boost its financial services industry. Foreign ultra-high-net-worth individuals investing a minimum of USD25 million in Mauritius will be granted a five-year tax holiday, as will licenced overseas family corporations, licenced asset and fund managers managing a minimum asset base of USD100 million, and international law firms issued with a global legal advisory services licence – to that effect, a limited liability partnership bill will also be introduced.

CANADA: Consultation on draft tax legislation

Draft legislation has been published implementing the important tax changes announced in Canada’s 2016 federal budget. They include proposals concerning multiplication of the small business deduction, avoidance of the business limit and taxable capital limit, country-by-country reporting and the Common Reporting Standard penalty.

US: FinCEN extends customer identification rules for real estate agents

The US Treasury Department’s Financial Crimes Enforcement Network (FinCEN) has extended its ‘temporary’ orders requiring US title insurance companies to identify the natural persons behind shell companies used to pay ‘all cash’ for high-end residential real estate in six major metropolitan areas. Similar ‘geographic targeting orders’ are already in place for Manhattan and Dade County in Miami, two of the US’ prime property areas. ‘All-cash’ does not mean actual banknotes but rather the purchase of property not funded by a loan.

NEW ZEALAND: Guidance on Common Reporting Standard for automatic information exchange

New Zealand’s Inland Revenue Department (IRD) has published guidance for financial institutions on the upcoming automatic exchange of financial information, based on feedback from a recent consultation. Draft legislation will be introduced in August.

If you have any questions regarding assets located overseas in terms of your trust and estate planning, please give us a call. Regards Tony

Duty and the Beast

DUTY AND THE BEAST (ie FIRST HOME OWNERS GRANT)

 

Long ago and far away the State Government in it’s wisdom created a Beast called “The First Home Owners Grant”.

This was designed to stimulate investment in domestic housing and drive the State economy forward.

We have a new version and a new threshold and if you or a family member meet the eligibility criteria, now might be a good time to take advantage of the payment.

 

As announced in the State Budget 2016-17, additional duty of 3% will apply to acquisitions of residential land by foreign persons (including companies and trusts) from 1 October 2016.

This additional transfer duty is imposed to fund additional payments under the State Government First Home Owner’s Grant.

The Queensland First Home Owners’ Grant is a state government initiative to help first home owners to get their new first home sooner. Depending on the date of your contract, you’ll get $15,000 or $20,000 towards buying or building your new house, unit or townhouse (valued at less than $750,000). You can even buy off the plan or choose to build yourself.

Note: The $20,000 Queensland First Home Owners’ Grant is not available to contracts that replace previous contracts entered into before 1 July 2016.

To be eligible for the grant:

  • You must be an Australian citizen or permanent resident (or applying with someone who is).
  • You or your spousemust not have previously owned property in Australia.
  • You must be at least 18 years of age.
  • You must be buying or building a brand new home, valued under $750,000.

 

This means a significant opportunity for young people trying to purchase their first home and we recommend that you take advantage of it while you can.

 

Remember, the payment must be considered as only one part of the equation. Careful planning, research and valuation evidence must be obtained before jumping into a contract. You must have a reasonable due diligence process for the Contract including Building and pest reports and conducting adequate searches of the property. Ask us how we can help with a fixed fee solution today!

The Business Spectator

I was fascinated to read about the journey by Alan Kohler in National Australia Bank Business View about his rise and rise to ultimate exit point of his capital in the business known as “The Eureka Report”.

What struck me were the core themes running through his business success alongside his other stakeholders:

  1. They targeted a specific market and attacked it in a very strategic way.
  2. They worked every day according to a fundamental principle: “the customer is right and you must deliver quality first”.
  3. They only sought and retained the best people for their business including cultural fit.
  4. They had an absolute focus on costs to deliver their end product at all times.
  5. By careful management they ensured loyalty and engagement with their customers, including the pricing policy.
  6. They exercised management discipline around each aspect of the business to keep it on track.

As a result they achieved a capital exit by the stakeholders by sale to a large public company which gave them access to greater opportunities and achieved their goals.

They also joined in a strategic alliance with a boutique service provider to enhance the customer offering and technology base.

These are the key points for any business with a plan.

As advisors to business owners in similar journeys we see many different outcomes and they are largely due to these fundamental principles either done well or done poorly. We are constantly helping out clients with planning, with the end in mind, and regularly review their internal strategy.

Our role is far more powerful when we act as a strategic partner to facilitate change in a business to build value for the owner over time.

This might be securing a trademark to build goodwill, rigorously checking terms and conditions to ensure recovery of sales or checklist by due diligence the legal strengths and weakness of a business.

Ultimately these things will determine if stakeholders achieve their goal of sale of a business and ensure that if they do their exit price is multiplied.

This is really the fun part of what we do as it means our clients are more aware of the risks and connected to the end goal from an earlier time.

While we won’t be here forever, good planning means great outcomes.

I love reading about business success stories like Alan Kohler as they inspire me to make changes and to refine the plan my own business.

Although our personal ambitions may be modest it is the satisfaction in achieving even small goals that makes life fulfilling as a business owner.

Giving back by Pro Bono

We are very proud of our community support program which ranges from the new Life Trust orphanage in Myanmar to The Womens’ Legal Service Queensland.

We also support the Cancer Council and here  are some interesting comments from a referrer:

Referrer Q&A

Across the country we work with wonderful referrers including social workers and oncology nurses at cancer treatment centres and hospitals who refer individuals to the program who need assistance with legal, financial, workplace and small business issues. We spoke with Victorian referrer Jessica Valentine who has referred many clients to the Pro Bono Program over the past 2 years about her experience with the program. Here’s what Jessica had to say…

I work at… Western Health- Sunshine Hospital in St Albans in Victoria.

I refer patients to the Pro Bono Program because… I have had positive feedback from patients who have utilised the financial planning and legal service. A cancer diagnosis can often cause financial disruption that can cause additional distress for patients and their families. These patients often feel pressured to continue working despite feeling unwell during their treatment. They are sometimes unaware of insurances that may be attached to their superannuation, mortgage, credit cards etc. The pro bono financial planning service can assist patients to navigate their best financial options and advocate on their behalf.

A cancer diagnosis can also alert people to legal issues that can cause them to feel overwhelmed in their already stressful circumstances.  Patients are often relieved to learn of the legal service available when they are experiencing financial hardship.

 

We have achieved successful outcomes for patients in these difficult circumstances and can be proud that we helped someone in a time of need.

If you or any of your friends are affected by cancer please let us know as we are able to work pro bono through the cancer Council to provide legal solutions.

Buyers from Foreign Residents Beware!

Deceased estates – Foreign residents withholding tax

Look out Foreign Residents that own property in Australia!

Our clients that are foreign based who own property here, may not have yet know about the new rules that commence on the 1 July 2016.  We thought it might therefore be prudent to share some insights, given we have a number of clients possibly affected.

Australia imposes various taxes on non-residents who hold specific classes of assets within Australia.   A number of these taxes are imposed at source using either a non-resident withholding tax or via non-resident tax rates.

An area that has an extremely low compliance level is the payment by non-residents of the capital gains tax on the sale of taxable Australian real estate.

In following a similar journey of a number of other jurisdictions such as the US and Canada, our federal parliament passed the ‘Tax and Superannuation Law Amendment (2015 Measures No 6 Bill) 2015 on 23 February 2016, which received royal assent on 25 February 2016, nearly some three years after its initial announcement.

The Bill imposes from 1 July 2016 a 10% non-final withholding tax obligation on buyers when they purchase certain assets from a non-resident where the purchase consideration is greater than $2 million dollars. It is aimed at improving the integrity and collection of our non-resident CGT regime. It is widely recognised that not only is compliance low in this regime, but the ability to obtain unpaid taxes once proceeds have left the country is extremely difficult and a costly exercise for our regulators. Particularly if the non-resident does not hold other Australian assets which the ATO is able to obtain access.

 Non-Resident Capital Gains Rules

A non-resident is exempt from capital gains tax in Australia under subdivision 855-A of the ITAA 1997, unless the gain relates to what is known as either Taxable Australian Real Property (TARP) or Indirect Australian Real Property (IARP).

Taxable Australian Real Property is defined in section 855-20 of the ITAA 1997 and broadly includes real estate, assets used in conducting a business and a mining, quarrying or prospecting rights if the minerals or petroleum are located in Australia.   Indirect Australian Property on the other hand is defined under section 855-25 of the ITAA 1997 which essentially captures a non-portfolio interest in an entity, which is where the equity interest exceeds 10% and the underlying value of Australian real property.

 Impacts on Deceased Estates

Executors of deceased estates will need to be aware of these provisions in the following circumstances:

  1. Disposal of a deceased’s property with a value greater than $2 million dollars
  2. The deceased, executors or beneficiaries are non-residents for tax purposes and the property is sold under their names.
  3. A non-resident executor acting for a deceased Australian tax resident

When selling a residence or other property holding of a deceased person, an executor should be  aware that the purchaser has an obligation to withhold 10% of the purchase price and to remit this to the ATO, unless a Clearance Certificate is provided with the sale, the sale is an exempt sale (e.g. less than $2 million), or a variation of the withholding amount has been from the commissioner.

Clearance Certificate

The ATO is establishing an online application process for vendors to apply to the Commissioner to provide a clearance certificate. The certificate is then provided to the purchaser to substantiate that the vendor is considered an Australian resident for tax purposes and accordingly the foreign resident capital gains withholding tax will not apply.   The online process will be mostly an automated process. However, the certificate will only remain valid for a period of twelve months.

The Explanatory Memorandum to the Bill makes it clear that a purchaser is to adopt a default position of considering any vendor as a non-resident, and accordingly withhold 10% tax for sales over $2 million unless a clearance certificate is provided by the vendor prior to settlement.

If executors do not provide a certificate on a sale of property from an estate, taxes will be withheld and remitted to the ATO by the purchaser that could both delay and complicate the estate administration process.

Exemptions

The provisions provide for the following exemption from the 10% withholding:

  1. The property sale is for less than two million dollars in consideration.
  2. The transaction is already subject to an existing withholding tax process.
  3. Where the vendor is subject to formal insolvency or bankrupt proceedings.
  4. Vendor provides a clearance certificate from the Commissioner.

Variations to Withholding Amount

An application form for vendors to vary the withholding percentage down is also provided on the ATO website, and it will take up to 28 days to process. Circumstances where the application of the 10% withholding amount would be considered inappropriate are,

  • Where the foreign resident will not make a capital gain
  • The foreign resident will not otherwise have a taxable income, for example they have carried forward capital losses.
  • There are multiple vendors and only one is a non-resident.
  • Properties secured by a registered mortgage and the sale proceeds will be insufficient to discharge both the mortgage and remit funds to the ATO.

Penalties for failure to comply

Purchasers are required to register as a withholder and to remit 10% of the first element of their cost base (generally the consideration paid) either on or before the day that the purchaser becomes the owner of the property.   The penalties for failing to do so include the value of the withholding liability per Division 268 in Schedule 1 ITAA (1953), general interest charges and the application of possible administrative penalties.   It is for this very reason that purchasers and their advisors should be taking these obligations extremely seriously. As a result, these new withholding rules could easily impact on the administration of an estate.

It should be noted that these provisions are considered as a ‘non-final withholding tax’ and accordingly have not addressed the tax obligations of the estate on the disposal of the property. Rather the estate will be entitled to a credit to the value of the withholding amount and is still required to declare the CGT event within the estate’s income tax return.

The provisions relate equally to residential and commercial property and also apply to property sales that occur on revenue account which are taxed as ordinary income. For example, property sales relating to a property developer.

Executors need to be aware that these provisions will apply to contracts entered into on or after 1 July 2016, although care should be taken to monitor any contract for TARP that will settle post 1 July 2016.