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Successful Succession Planning
Step 1A: Protect the Business & Incoming Owners
✔ Setup for Success
✔ Existing Wealth Protected
The incoming owners need to be coming into a situation where they can survive, and then thrive. They also need to be protected in case something goes wrong.
Video Coming Soon
Mid 2024
Protect the Business & Incoming Owners
Step 1B: Protect the Retiring Owners
✔ Security During Retirement
✔ Confidence in Long-term Business Success
The retiring owners will want to pass the business over with confidence in its long-term continuation, whilst also ensuring they have a financially healthy future that is setup in a tax effective manner.
Video Coming Soon
Mid 2024
Protect the Retiring Members
Step 2: Save Tax & Duties
✔ Bare Minimum Income Tax & GST
✔ Bare Minimum Transfer Duty
Transferring assets and businesses during succession triggers taxable events. Often there are subtle nuances which require forward planning and implementation well in advance to take advantage of whatever tax or duty concessions there may be to legally minimise the tax burden.
Read Key Points & Transcript
Saving Tax During Successions
video key points
- Transferring a business to the next generation can incur significant tax and duty consequences, including Capital Gains Tax, Transfer Duty, and GST.
- Adequate forward planning can help avoid unexpected tax bills and may substantially reduce them, demonstrating the importance of early and proactive tax planning.
- An example highlight how specific strategies, such as leveraging small business CGT concessions and considering unique business situations, can result in substantial tax savings.
- Proactive engagement and planning are essential, with a recommendation to start the succession planning process several years in advance to optimise tax outcomes.
- For business owners contemplating succession, it’s critical to take time for forward planning to minimise taxes legally. We’re ready to assist in navigating these complexities.
Presented by: Rama Yudhistira
video transcript
Some business owners may not realise this, but there can be severe tax and duty consequences upon transferring your business to the next generation.
Some of these tax consequences may involve:
- Capital Gains Tax;
- Transfer Duty (also known as Stamp Duty); and
- GST.
The good news is, if you adequately plan ahead, you and the next generation shouldn’t get a rude shock from an undesirable tax or duty bill, and you may in fact be able to substantially reduce them too.
I’ll share some brief examples of successful succession planning to explain further.
The first example involves a long-running family business with a uniquely historical company structure.
This family plans to sell some valuable assets and naturally want to reduce taxes as much as legally possible. As their advisor, we identify the small business CGT concessions as a potential way to significantly reduce taxes. However, there’s a problem, related to the historical company structure.
Thankfully, both the client and we have been proactive, and the sale is not imminent. We are able to implement changes several years before the sale.
This forward planning and execution allow the family to become eligible for the small business CGT concessions years down the track. It is a fantastic outcome for them with substantial tax savings.
This second example involves a family farm.
As is common in farming families, when the children have been working on the farm for several years, at some stage they want to have some assets in their name.
The parents are happy to transfer part of their farmlands to their children while they are alive. The parents tell us about their intentions, which allows us to consider the potential tax implications and begin to explore potential tax saving opportunities.
In this example, the family farm is in a unique business situation. Unlike most years, where revenue exceeds $2million and disqualifies them from the small business CGT concessions, the projected revenue for the current year is below the $2million threshold. This means that if they act promptly they should be able to access the very favourable tax concessions.
In reality, it wouldn’t be as simple as this. Rather, we’d have to, amongst other things, look closely into the legislative definition of “aggregated turnover” to confirm eligibility.
Thankfully, in this example, we are very pleased to inform the parents that they are in a rare position to access the Small Business CGT Concessions and save substantial amounts of tax.
Further, we also carefully analyse the situation with respect to both Transfer Duty and GST. Consequently, we help them structure the transfer in such a way that they are free from both Transfer Duty and GST.
If you are considering passing on your business to the next generation, please take the required time to forward plan.
Ideally, do this a couple or more years before succession in order to allow sufficient time to implement what may be necessary to legally minimise your taxes. We’re here to help if you need us.
For Large Family Groups
✔ Family Constitution
✔ Professional Support
A critical concern when planning to pass your business/wealth down to sons and/or daughters is that they might not be able to preserve and grow it, or family disputes might erode it.
Read Key Points & Transcript
Structuring for Wealth Succession
video key points
- Successful business and investment succession within families can be marred by issues like tax mishandling, divorce, and poor financial decisions, leading to wealth erosion.
- Effective wealth succession planning is crucial in protecting family wealth, involving considerations such as blood-line clauses, fair market remuneration for family members, and the necessity of external financial oversight.
- Proper documentation of historical and future loans and gifts, alongside considerations for family governance, such as a family constitution and board, play pivotal roles in succession planning.
- Estate planning is essential for ensuring a smooth transition of assets, helping preserve wealth following the death of a loved one.
- Recognising the complexity of wealth succession, the encouragement to seek professional advice reflects the importance of having affairs in order and optimally arranged for the future.
Presented by: Saul Segal
video transcript
It’s really wonderful to see a successful business, or a group of successful businesses and investments, built-up by grandparents and parents, passed down to their children.
What’s horrible to see is that family wealth eroded over time, of which there can be many different causes. Such as, mishandling of tax, divorce, poor investment decisions, even embezzlement.
We know very well that planning for and executing wealth succession plays a critical role in mitigating the erosion of family wealth.
Things which may come up in the succession planning stage are:
- Do you need blood-line clauses or binding financial agreements?
- Have all historical, and planned future, loans and gifts been properly documented?
- For family members working in the business, what is their fair market remuneration?
- Do you need an external Financial Controller?
- How often should the financials be audited?
- Do you need specially-designed trustee and/or appointor companies?
- Do you need a family constitution?
- What dispute resolution mechanisms do you need in-place?
- Do you need a family board and what external advisors will help enhance future performance?
There are also the matters of estate planning, to help achieve a smooth, asset preserving transition following the death of a loved one.
All of this can be quite daunting, and unfortunately we know all too well that people can choose to put this into the too hard basket. Sometimes until it’s too late. It’s not a situation any family wants to be in.
If you’re affairs aren’t in order, or you’re not sure if they are appropriately optimised, then give us a call. We’re here to help.
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