Succession planning for family businesses
For most family businesses as well as private groups, succession planning (sometimes known as transition planning) is a wise move to prepare the eventual sale of your business, or the passing of control of it to other family members when you retire.
Adopting a sound tax governance framework can help you manage tax issues around succession planning before they present a problem. Though succession planning may not have an immediate tax impact, it’s important to include tax considerations in your plan. This will avoid unexpected tax issues arising down the track when you implement your plan.
TRANSFERRING CONTROL OF YOUR BUSINESS TO FAMILY MEMEMBERS
Transferring control of your business to family members may involve restructuring your business operations some possible ways are;
- changes to share structure
- changes to the trustee
- appointor of a trust
- changes to partnerships structures
- transferring assets to family members
Remember that these sorts of events can have legal and tax implications that need to be carefully considered.
A common assumption with business owners is that the transaction being considered is a single “sale” — that of the business — whereas it is actually many sales of individual assets that need to be accounted for, possibly with different tax outcomes.
For example, when you dispose of or transfer your business assets there will likely be capital gains tax (CGT) consequences. The sale of a business can also trigger liabilities in relation to GST and, where applicable, wine equalisation tax, fuel tax credits and excise duty.
Any significant changes to your business structures or operations (including any asset disposals) should be fully documented, along with their tax impact. Ensure information on your assets (such as acquisition dates and cost base) is properly documented. This will also ensure that any subsequent disposals of the assets can be treated correctly for tax purposes. Different strategies will have different tax consequences for the owner and beneficiaries. Consider each strategy and identify (and keep records of) significant transactions.
as the owner of a successful family business, you prepared a basic succession plan many years ago, but since then your business has expanded and your children have grown up. One of them may work with you in the business and you would like to see them take over when you retire. The discussion you could have with this office would be how best to transfer the business and make the transition to retirement.
One option could be to restructure your business as a family trust, so you can still have some control of the business while reducing your involvement in the day-to-day operations. We can explain the tax consequences of this strategy, while also alerting you to other options and tax considerations. Once you decide on your strategy, you update your succession plan, which now includes a section detailing the tax treatment and tax payable on transfer.
Whatever strategies you use to transfer your business onto the next generation, make sure your plans are documented and you seek advice from professional advisers where needed. This will reduce the risk of incorrect tax treatment and outcomes, and possibly consequent penalties.
Don’t hesitate to contact us at GFA as we have many years experience in helping family businesses plan for the future