Retirement villages and requirements for transparency of budgets
Jo Twible • January 10, 2018
Case Summary - Pines Management (ACT) Pty Ltd v Eastick & ors Case Summary - Pines Management (ACT) Pty Ltd v Eastick & ors
On 18 December 2017, the ACT Civil & Administrative
Tribunal handed down its decision in relation to part of the dispute between
The Pines Retirement Village and its residents.
There were two issues in dispute. The first is the budget for the 2017/2018 financial year. The second is the amount of recurrent charges to be paid by the residence for that year. ACAT made a determination about the budget issue and is due to hear additional evidence regarding the recurrent charges issue in mid-January 2018.
There are some bigger lessons for operators to learn from The Pines decision. First and foremost, operators need to prepare their budgets based on evidence and provide any evidence the residents request to support the proposed expenditure. ACAT was extremely clear in its decision that residents are entitled to information, including copies of tax invoices or quotes.
The Pines decision took a requested budget the operator sought to be approved of nearly $189,000 and reduced it to just over $99,000. This is extremely significant given the previous year's budget was $155,673.
Key determinations made in this decision regarding particular line items were:
- An operator shouldn't expect to be able to fund its application to ACAT to get approval for the budget and increases in recurrent charges from those recurrent charges. In this case, ACAT was very clear that a situation where it disapproved over half the requested budget as the proceedings were certainly not wholly in the interest of the residents (a requirement under section 260 (2) of the Retirement Villages Act 2012 . If the operator had been wholly successful in having its proposed budget approved, the door might stay open to then seek the inclusion of the legal fees in the budget;
- Cost to fix defects in the construction of the retirement village are not to be paid for from recurrent charges as they don't
constitute capital maintenance;
- Where a retirement village is co-located with an aged-care facility, an operator should seek a breakdown from its insurer as to which components of the insurance premium relate to the village and which relate to the aged-care facility. Interestingly, where the insurer only provided a partial breakdown, ACAT utilised the breakdown provided and then apportioned the remaining premium and insurance brokerage fees on the basis of the comparative insured values of the retirement village and the aged-care facility. Similarly, where there's only one water meter that services both facilities, the costs for connection to the network/supply charges are shared;
- If the land on which the retirement village is located also includes a component of vacant land which is not reasonably used by the residents (regardless of what the operator may say about the ability to use that area), the operator shouldn't include gardening cost to maintain that vacant land nor the proportional component of general rates for that area of land in the retirement village budget;
- Separate line items for Repairs and Maintenance and Capital Maintenance cause some confusion, particularly where both are really Capital Maintenance under the legislation. Notwithstanding commenting to this effect, an allowance was made for Repairs & Maintenance separate to the Capital Maintenance line item. The amount allowed was $300 and appeared to be to cover the cost for replacing light bulbs.
- Residents need to understand that capital maintenance can include replacing part of an overall capital item. In this situation, ACAT was clear that replacing an alarm number pad and door station formed part of the course of the maintenance of the overall capital item – the alarm system;
- The amounts to be allocated in the Budget for a Village Manager may not reflect what is actually being paid for that Village Manager. In The Pines decision, Presidential Member McCarthy accepted that the Village, as a small Village, only required the Village Manager's services for a maximum of 4 hours per day. Insufficient evidence was provided regarding the appropriate rate to pay for the Village Manager. While ACAT clearly indicated that it was seeking appropriate evidence (such as a reference to an Award or details of what other Managers in other Villages were paid for their services), this evidence was not supplied. In the end ACAT determines an hourly rate, itself. Further, as no evidence was provided as to the requirement for all the amount of the superannuation guarantee to be paid, no allowance was made for it. This does not mean that Residents should take the view that superannuation guarantee requirements may be disregarded and are not payable from Recurrent Charges. Instead, it is a big warning sign to Operators that if they are seeking to have their Budget approved by ACAT, they need to provide appropriate evidence and references to the relevant legislation to substantiate the amount they are seeking to be included. Had the Operator provided that evidence then I am reasonably confident ACAT would have included an allowance for it in the Budget;
- ACAT will also look at the quality of the services being provided and whether there is a more cost effective/better means of those services being provided. In The Pines decision, one of the tasks been undertaken by the Village Manager was bookkeeping activities. Evidence from the auditor was that much time was spent by the auditor in correcting errors in the bookkeeping and that these errors were in part because of the Operator being unwilling to obtain a full version (rather than a training version) of the software and that the Village Manager was unskilled in these activities. Interestingly, while it appears the hours allocated for the Village Manager was reduced, it does not appear that a corresponding allowance was made for having a third party bookkeeper undertake those activities;
- Much was made about the lack of provision of evidence to support the proposed Budget. Another expense that was disallowed was an amount for a relief Village Manager while the permanent Village Manager was on leave. While my view is that a relief Village Manager is not an unreasonable expense to include in a Budget, it needs to be backed up with evidence as to who that Relief Village Manager is likely to be, what arrangements are made for that person to be available and evidence as to what they are paid or to be paid for providing those services;
- Contingencies – ACAT drew attention to the provisions in the Regulations which specify how much may be included in a Budget for Contingencies. Regulation 38 states where the Annual Budget is $200,000 or less, the maximum amount that may be allocated for contingencies is $1,000. Once the budget exceeds $200,000, the maximum amount for Contingencies is 0.5% of the total amount of the Annual Budget.
Finally, ACAT made it very clear how it interpreted the provisions of section 166 of the Retirement Villages Act 2012 . Section 166 states the operator commits an offence if it spends money received for recurrent charges and doesn't spend that money in accordance with the approved annual budget (or an approved annual budget as amended under section 167). While ACAT acknowledged that there is an exception in section 166 which states that the offence provision does not apply if the spending is a change in spending between items in the approved annual budget and does not reduce the level of services the retirement village provides and does not cause a total spending provided for by the approved annual budget to be exceeded. When items in a budget are allocated for particular things, for example cleaning, Presidential Member McCarthy expressed the view that it's difficult to see how the exemption in section 166 (3) could apply without reducing the level of cleaning services. In the Presidential Member's view, the nature of the budget providing "buckets" of money for different expenditure is such that there is unlikely to be many circumstances where the exemption would apply.
This decision brings home that an operator is not free to set whatever budget it likes. Residents have significant power to refuse to agree to a budget and to expect the operator to provide sufficient information regarding the anticipated expenditure, based on evidence, to enable the residents to make a fully informed decision. There are many good operators in Canberra who provide the appropriate levels of transparency to their residents. For those who do not, this decision should put the operator on notice that they need to start doing so. Importantly, just because an operator does not get their budget approved, does not mean that they can reduce the services provided to the residents. With the legislation requiring the operator to meet any shortfall in the budget against actual expenditure (with some limited exemptions), the outcome of The Pines decision is at those operators could find themselves forced into a position of having to provide the evidence, seeking a formal amendment to the budget or foot the bill themselves.
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Many heartened by encouraging advice at seminar
He attributes the wins to the great team around him
Doyles recognises Andrew Freer and KJB Law once more
Picture: Vlada Karpovich/Pexels ABOUT THIS SEMINAR We make property decisions throughout our life when choosing where to live, but as times goes on the decision is more than just what real estate can I get for my money. We need to think about how we will live and who is there to help us. The process of moving into a retirement village community requires consideration and accurate information. Before committing, it is critical you understand the retirement villages contractual arrangements, impact on your estate and ways to comfortably pay for your living expenses. This Moving into a Retirement Village seminar is designed to equip you with the legal and financial practicalities of securing a home in a retirement village. WHAT WILL I LEARN? The legal side of retirement-village entry • There are fundamental differences between home ownership outside a retirement village and your rights with respect to accommodation inside a village. Simply put, the contractual arrangements for retirement villages are more complex. Adding to this complexity is that retirement villages in the ACT do not have identical contractual and financial models. This seminar will give you insight into the contractual and financial models on offer in the ACT; and • Notwithstanding those different contractual and financial models, there are some commonalities which apply to entry and life in each village. In this seminar you will also learn about cooling-off periods, settling-in periods, recurrent charges, budget approvals, how your money is protected and when the law requires you to get your money back after you leave a village. Wills and enduring powers of attorney • Why it is important to have a will and enduring power of attorney; • What should be included in a will; • How to choose your attorney and how to protect yourself; and • What happens if you do not have a will and/or enduring power of attorney. Funding your retirement lifestyle as well as preparing for the frailty years. • The common question when it comes to retirement is: how much is enough? If only the answer was simple! But the fact is that the answer varies due to a range of factors, including your lifestyle aspirations, personal health and family commitments; and • We cover strategies available to increase cash flow and income certainty to support your quality of life in retirement and the need to prepare for when you may need extra supportive care. WHO SHOULD ATTEND? People who are: • researching the option of downsizing; • wanting to learn more about living in a retirement-village community; • confused about the different retirement-village contractual arrangements; • seeking clarification about the costs; and • preparing for retirement. NEED TO KNOW MORE ABOUT THE SEMINAR? It's on Tuesday, June 22, 10am to 12.30pm, at the Hellenic Club of Canberra , 1 Matilda Street, Woden. It's presented by KJB Law and Phillips Wealth Partners . Book online: eventbrite.com.au/e/plan-for-a-successful-move-into-a-retirement-living-community-tickets-154049300605 Details, bookings: Liz (02) 6281 0999 or liz@kjblaw.com.au
OPTIONS: Our specialist solicitors, including Andrew Freer, are able to meet with you via Skype or Zoom if you can't do a face-to-face meeting. Main picture: Lukas Bieri/Pixabay As the ACT and the rest of Australia moves out of strict covid rules, it’s important that our health and safety remain a No.1 priority. Although regulations and guidelines are relaxing, it’s vital we all remain vigilant and care for one another. We all share this responsibility. The ACT is operating under a set of COVID-normal restrictions . Please do not visit KJB Law offices if you have any covid-like symptoms, such as a cold or flu, fever or high temperature. Many legal matters cannot be postponed and if you need to avoid physical contact you can make an appointment for a phone meeting, or a video meeting via Skype or Zoom, simply by calling (02) 6281 0999 or emailing us, kjblaw@kjblaw.com.au. Legal concerns range from writing or updating wills or powers of attorney to more complex matters like family law and conveyancing. You can chat with our friendly receptionist Kylie Brown, on (02) 6281 0999 or email her at kylie@kjblaw.com.au, and she will happily point you in the right direction. Kylie can also outline our fees which vary, depending on what needs to be done. It is important every client has a clear understanding of their tailored legal plan. An initial consultation may be 30 minutes or two hours — everything is shaped to your needs. Appointments are generally taken from 8.30am, the final meeting usually ending at 5pm. We try to keep to those times but this is not a hard and fast rule because we recognise there can be other circumstances to allow for. If you know which legal specialist you need, or have already begun working with one of our solicitors, you can find their personal contact details and the details of their staff here or here . In line with covid guidelines, all visitors must register their name and phone number at reception which is needed in the event of contact tracing. If you book an appointment, we’ll take your details then so there’s no need to register when you visit. If you come in off the street we’ll ask you to register then. Appointments streamline the process and make it easier for everyone. It’s not mandatory to wear a face-mask when you visit us but you may if you wish. All of our meeting rooms and spaces are wiped down and sanitised for every meeting. You can rest assured that when you come in and sit down, your chair has just been wiped clean for you. We continue to closely monitor and adhere to the regulations and advice provided by the Federal Government’s Department of Health and in accordance with ACT Government guidelines . Thank you for your support as we work together for the health and safety of our clients, staff and the community.
KJB Law is thrilled to be a finalist again in this year’s Local Business Awards for the Canberra region . The company is competing in the Professional Services category — which it won last year. “WE'RE so thrilled to be nominated once again and to be a finalist in the competition,” said principal Jo Twible. “A big sincere thank-you on behalf of Andrew, Des and I and everyone at KJB to all our clients and friends for the nomination!” The awards are conducted over an 11-week period. The public has nominated their favourite Canberra regional businesses which have been divided into 30 categories. 'We’re so thrilled to be nominated again and to be a finalist in the competition. A big sincere thank-you to all our clients and friends for the nomination!' JO TWIBLE principal and solicitor Voting in the Canberra region opened on April 22 and closed on September 17. Finalists were selected based on the number of online and printed nominations they got in their category, the more nominations the better chance of being selected as a finalist. There was no arbitrary cut-off point, as the number of nominations varied for each category. The finalists are judged in two stages — on information received from each business (the qualifying stage) and anonymous judges (the judging stage). Because of covid, visits to each business are not always feasible, in which case judges will evaluate the business's website and online presence (social media, advertising, etc) and may conduct impromptu phone interviews. The winners will be announced at the Local Business Awards gala presentation evening on December 16, which will be attended by local business people, sponsors and dignitaries. Tickets are only available to finalists and sponsors. All Canberra region finalists: here Professional Services category finalists: here KJB Law’s awards-entry page: here The awards are run by Precedent Productions : (02) 8363 3333 or precedent@precedent.net Pictures: Precedent Productions
HUMBLED | Principal Andrew Freer has just been announced as one of the ACT's top five estates-litigation lawyers. Picture: Canberra City News . Graphics: Doyles PRINCIPAL and solicitor Andrew Freer has just been listed as one of the “pre-eminent” lawyers in estates litigation in the ACT in this year’s Doyles Guide listing. And KJB Law is the highest-ranking Doyles Guide firm in the Woden area, listed as “second tier” for estates litigation in the ACT . “I’m humbled to get this recognition by peers, colleagues and clients,” Andrew said. “And I’m so proud to work for a company that enables people to shine, with co-workers who support each other. “I acknowledge and put on record my deepest appreciation of the efforts and contribution of all members of the KJB team. “I’ve been at KJB now for 25 years and it’s quietly satisfying to know the experience and knowledge garnered over that time is valuable and acknowledged.” This year’s listing of leading ACT wills and estates-litigation law firms highlights solicitors and companies practising in wills and estates litigation, disputes and contested matters in the ACT who’ve been identified by their peers for their expertise and abilities in these areas. ' I’m humbled to get this recognition by peers, colleagues and clients. And I’m so proud to work for a company that enables people to shine, with co-workers who support each other . ' ANDREW FREER Principal and Solicitor Doyles is an independent organisation that rates and recommends law firms based on interviews with clients, peers and industry bodies. The firm produces one of the most recognised independent guides to top law firms in Australia. Doyles doesn’t allow firms to buy entries. Andrew is listed for estates litigation in the ACT. Here' s the full list of this category's pre-eminent tier (in alphabetical order): Pre-eminent ranking: Keith Bradley , of Bradley Allen Love; Phil Davey , of DDCS Lawyers; Andrew Freer , of KJB Law; Tim Morton , of Farrar Gesini Dunn; and Rebecca Tetlow , of DDCS Lawyers. KJB Law is listed for estates litigation on the ACT. Here's the complete listing of all four tiers in this category (in alphabetical order): First tier: Bradley Allen Love; and DDCS Lawyers. Second tier: Farrar Gesini Dunn; KJB Law; and Meyer Vandenberg. Third tier: Bedfords Legal; and McInnes Wilson. Recommended: Baker Deane & Nutt; Elringtons; Howes Kaye Halpin; Symons Phillips; and Tetlow Legal. The content and listing of firms, lawyers and barristers is compiled after initial online peer-review-based surveys and phone and face-to-face interviews with clients, peers and industry bodies. Its research is focused on clients and legal practitioners. Most of its personal-services areas (ie, family, crime, estates and succession planning) are compiled via peer-based surveys and reviews. At the end of the research stage of the ranking process, individuals and firms are ranked according to volume and quality of positive feedback. The distinction between tiers of firms and bands of individuals is made by way of editorial discretion, in light of: Any clear numerical delineation between firms or groups of firms; Recommendations from significant clients; Recommendations from significant peers; The firm’s or individual’s ranking in previous Doyles’ listings; and Doyles’ impression of the individual during interviews. All research is independent, and errors or faults in the guide and listings aren’t due to commercial pressures or relationships. The firm listing contains four categories, ie, three “tiers” and “recommended”. The classification of a firm into a particular tier basically depends on numbers. Especially glowing reports from key clients and individuals can also be considered. The rating of a firm in a particular tier is not a definitive classification as to the skills and abilities of each individual legal practitioner in that firm. Doyles’ listings of lawyers are in four categories: Market leader is awarded to an individual who clearly stands ahead of their peers; Pre-eminent and leading lawyers are those who consistently draw client and peer praise; and Recommended lawyers are those who display particular skills or attributes in the area. All Doyles’ listings in each ranking category are in alphabetical order. A position at the top of the list category doesn’t indicate a higher ranking or rating than a ranking at the bottom. Firms don’t have to participate in Doyles’ research or make submissions. Doyles tries to speak to clients and third parties and also senior legal practitioners within firms. The listing of leading firms and individuals not only creates an environment for a more accurate recognition of Australia’s leading lawyers, Doyles says, but also allows for informed choices for those wanting a local lawyer. Doyles website here . Andrew's Doyles profile here .
INCOME CONCESSIONS CHANGED | New measures approved on June 22. Graphic (left): Steve Buissinne/Pixabay. Children (right): Pixabay. ON JUNE 22, the Treasury Laws Amendment (2019 Measures No 3) Bill was approved. This means tax concessions previously available to minors when they get income from a testamentary trust have changed and are no longer as generous. Testamentary trusts vs inter vivos trusts A testamentary trust is a trust which only comes into existence when someone dies. An inter vivos trust is a trust which comes into existence while the individual is still alive. Distributions to a minor (someone under 18) from an inter vivos trust are taxed harshly, with only the first $416 tax-free. Tax is charged at 66 per cent on the next $891 and then tax is charged at 45 per cent on any amounts over $1307. These rates create a disincentive to distribute income to minors from inter vivos trusts. Distributions to a minor from a testamentary trust have been taxed more leniently. The old situation Under the former law, any income received by a minor from a testamentary trust was taxed as though the minor was an adult. This meant that the first $18,200 of income was tax-free, the next $18,800 was taxed at only 19 per cent, and so on. It was irrelevant whether this income was derived from assets of the deceased estate or from assets added to the testamentary trust from other sources, for example, assets which were transferred into the testamentary trust from a family trust or from borrowings. This was one of the aspects which made a testamentary trust attractive for estate planning. ' If you administer a testamentary trust and assets were injected into it on or after July 1 last year, separate accounts should be set up so income from these assets is kept separate. ' KERSTIN GLOMB Special Counsel, Estate Planning The new situation The Treasury Laws Amendment (2019 Measures No. 3) Bill 2019 amended the Income Tax Assessment Act 1936 to insert a new clause, s102AG(2), tightening tax concessions available to minors in respect of testamentary trusts. It has the effect that income from assets transferred to a testamentary trust on or after July 1 last year will no longer be "excepted trust income" under the legislation and will no longer qualify for the tax concession unless it's income from assets transferred to the trustee of the testamentary trust from the deceased estate or are an accumulation of such income. Examples given by the Australian Tax Office with respect to how they're interpreting these provisions include not just the anticipated scenarios of an inter vivos family trust distributing money or assets to a testamentary trust but also include the testamentary trust borrowing funds to acquire an asset. So, if a testamentary trust bought a property for $1,000,000 using $500,000 of its own cash from the estate and $500,000 in borrowings, generating a return of $40,000 per annum, and distributed all $40,000 to a minor, only $20,000 of it would be exempted income and taxed concessionally and the other funds would be taxed at the harsher rates. What to do? Should you currently administer a testamentary trust and assets are or have been injected into the testamentary trust on or after July 1 last year, separate accounts should be set up within the testamentary trust so income derived from the injected assets is kept separate to income derived from assets of the deceased estate. Should you and your partner have mirror wills in place under which you provide that each of your respective estate flows into the same testamentary trust, the estate assets of the second person to die will be considered as "injected assets" of the testamentary trust. To avoid this problem, consideration should be given to amending your wills to allow for separate testamentary trusts to be established. For more information or to discuss the implications for you and your partner, don't hesitate to call us, 6281 0999.
JULY YULETIDE CELEBRATIONS: Principal Andrew Freer, honoured for his 25 years service at KJB. Christmas design: Miesha Moriniere/Pexels. Logo: DunJa2410/Pixabay. OUR mid-year function at the end of last month was a staff party with a difference. Thanks to covid, there was no singing, no dancing and no close mingling. It was socially appropriate to keep a safe distance from each other, though it did feel odd! But there was still lots of atmosphere, lots of things to celebrate — especially honouring principal and solicitor Andrew Freer for his 25 years’ service at KJB. The Christmas in July function on Saturday, July 25, for KJB staff and their partners was at The Boat House in Canberra. It’s a great venue, right on the edge of Lake Burley Griffin. We had our own private room, with great food, great wine and great company. Nevertheless, it was quite an unusual celebration for us as we respected social-distancing rules and all the other covid protocols to keep everyone safe. During the evening fellow principal and solicitor Jo Twible spoke in glowing and warm terms about Andrew. “For those of you who’ve only recently joined us, at our mid-year and end-of-year functions we take the opportunity to recognise and celebrate significant employment milestones,” Jo said. ' Anyone who works with Andrew knows he’s incredibly hard-working, he's kind, considerate and compassionate. Des and I couldn’t ask for a better partner. ' JO TWIBLE Principal and Solicitor “Andrew started at KJB 25 years ago — on June 26 in 1995. Of our current workmates, only Sue and Sonya have been with the firm longer. “When he started with us, the company was called Ken Johnston Bedford & Co which later became KJB Law. On his first day he impressed his workmates by baking and bringing in an orange poppy-seed cake which everyone enjoyed. At the time he also had black hair! “In 2000 he made partner. Given his birthday milestone earlier this year, he’s now spent about half his life working here. "Anyone who works with Andrew knows he’s incredibly hard-working, he’s kind, considerate and compassionate. Des Moore [fellow principal and solicitor] and I couldn’t ask for a better business partner!” Then Jo presented him with a TAG Heuer watch on behalf of the company. Andrew wasn’t expecting this and was a bit overwhelmed. “It was the first time I’d ever seen him put on the spot!” office manager Sue Hayes said afterwards. “Basically, he didn’t know what to say, and he’s usually a fantastic speaker, never stuck for words. “He thanked everyone and said what a great place KJB was to work. He said he still remembered his job interview with me over 25 years ago and joked about who would interview anyone at 5pm on a Friday afternoon!” See THE BOAT HOUSE GALLERY on our Facebook page.
The problem You'll remember from our last news alert about documents being signed in NSW that usually wills, enduring powers of attorney and affidavits must all be signed in the direct presence of a witness, or witnesses. This means that the witness has to be physically present when the person is signing. In view of the current hygiene requirements for COVID-19, this requirement has created some significant hurdles for clients wanting, or needing, to plan their estates. We'd been waiting for NSW's lead in this area to be followed by the Australian Capital Territory. The solution On April 22, the NSW Government passed the regulation — Electronic Transactions Amendment (COVID-19 Witnessing of Documents) Regulation 2020 (NSW) — which addressed the problem (see more on our website here ). On May 8, the ACT Government also passed provisions (amending the COVID-19 Emergency Response Act 2020) to allow witnessing and attestation by audiovisual link of an affidavit, a will, a health direction under the Medical Treatment (Health Directions) Act 2006 and a general or enduring power of attorney during the COVID-19 emergency period. This runs through to the end of a three-month period during which no COVID-19 emergency has been in force. It's important to note that the Act doesn't allow the witnessing of deeds and agreements by audiovisual link. As under NSW law, there are some further steps that must to be taken by anyone witnessing a person signing a document to meet the requirements set out in the Act for it to be valid. For further information please call us on 6281 0999. Picture: Andrea Piacquadio/Pexels