Poor succession planning exposing private groups to major tax bills: ATO
Privately owned and wealthy groups are increasingly being hit with unexpected tax consequences as the Tax Office homes in on their succession planning.
Succession planning and the tax risks associated with it remain a major focus for the ATO in relation to privately owned and wealthy groups, the Tax Office has warned.
Louise Clark, deputy commissioner for private wealth for the ATO, said an ageing demographic of controllers of private groups has led to an increase in succession planning activities as private groups prepare to sell their family-controlled business or transfer control or wealth to the next generation.
Clarke warned that there has been an increase in private groups receiving significant unexpected tax consequences, particularly where they have not planned or considered the tax impacts of prior decisions.
“This is often a result of private groups failing to adopt effective tax governance,” she said.
The ATO said succession planning can involve a number of considerations and can at times seem like a complicated process.
“However, private groups need to prioritise it as succession without planning may lead to unintended tax consequences,” it said.
The Tax Office has released new succession planning guidance, which explains how a sound tax governance framework can help privately owned groups manage tax issues for succession planning.
“Considering the tax consequences of succession planning should be a priority for private groups, particularly where they’re preparing to sell a family-controlled business or planning to transfer control or wealth to the next generation,” Clarke said.
“Even when a controlling individual isn’t looking to retire or step back from the day-to-day operations of the business in the immediate future, they should have a plan in place for their succession, and the tax implications should be front and centre.”
Every private group is different, and so each succession plan will be unique.
“That’s why our refreshed information provides guidance for all private groups. A key aspect is making sure you have sound tax governance,” Clarke said.
The information in the guidance outlines what groups should do as part of succession planning, including putting a succession plan in place, checking it regularly, considering the tax consequences and seeking advice from the ATO or their tax advisor as required.
“Private groups should also be aware that while we’re here to provide helpful information, we’re looking out for deliberate tax avoidance,” the ATO said.
“We’ll continue to provide information on succession planning and the associated tax risks to help you with the tax management side of your plan.”
