SAVE-TAX PLAN

Press, Volume XCIV, Issue 28020, 14 July 1956, Page 11

SAVE-TAX PLAN

Families Become Companies

AVOIDANCE OF DEATH DUTIES [By BARBARA HENDERSON] SYDNEY, July 9. Scores of rich Sydney people have turned themselves into companies over the past few months. Dozens more have gone into conference with their accountants, lawyers and tax consultants to decide whether they should do so. The turning of their assets into a private company in this way has been for many the first step in an astute “company” scheme to reduce death duties. Accountants told me this week that the present flood of inquiries had been caused by a breezy article, “How to Minimise Death Duties,” written by Miss A. M. Magoffin in the April issue of “Rydge’s” business journal.

This article listed half a dozen methods of reducing the tax, but prominent among them was the company scheme. “Dodging death duties, always a laudable pursuit, became the vogue in the wool-boom year, 1951,” one accountant told me. “But the ‘Rydge’s’ article triggered an explosion of inquiries and activity in the offices of solicitors and others handling this specialised type of work.” Results had been startling at the office of the journal, also, its editor, Mr N. B. Rydge, jun., said. The article had provoked more comment than anything published in the last 15 years; set telephones ringing with hundreds of local inquiries; and brought in more than 6000 requests for reprints. Death duties on the estate of a person domiciled in New South Wales take £750 out of an amount of £10,000; £2600 from £20,000; £5190 from £30,000; £12,264 from £50,000; and £234,371 or round about 50 per cent, if one dies worth half a million.

A prominent businessman told me; “I’ve pulled myself up by my bootlaces to where I am now, and I’m going to do all I can to hang on to things for my children.” Accountants explained that the scheme could be put into operation in a few weeks; would be uneconomic for an estate of less than £20,000; but could pay its cost of launching by a saving in income tax in the first year Be warned, though: forming and managing such a company is a highly skilled job. One accountant said: “It is wise for a man to begin divesting himself of his assets around 45. He forms a company with his children as shareholders and himself as governing director, with powers to fix his own salary.

“He then sells his assets to this company on a time-payment basis, his children paying for them over a period of years out of income from the assets. The man’s ‘salary,’ plus the instalments of the purchase money he receives from his children each year, allow him to live at his former income level.”

Even lower and middle income professional men have taken to conning over the question of how to exit gracefully from this world without bringing down a tax avalanche on their offspring.

Methods of minimising death duties open to them included the straight-out gift (but not less than three years before death), and the insurance of a wife by husband or husband by a wife (“but not from the housekeeping”).

Change of domicile to Canberra to avoid the State tax was a third method mentioned to me by a lawyer.

“If you can stand the cold,” he said “you’ll save nearly £l5OO on an estate worth £20,000.” —Associated Newspaper Feature Services.