Succession Planning Strategies

Getting your business structure right for Business Succession Planning

Ideally, any business owner planning for retirement will start the process of getting their business structures in order, well in advance of the date of retirement or sale. This will include creating a group of succession planning strategies to get your business ready for the transition. For example, in a family business, ownership structures suitable for one generation may not be suitable for subsequent generations, or a business structure may need to be altered to be more ‘sale ready’. Potential changes surrounding these succession planning strategies should be considered well in advance so that any necessary reorganisation can be implemented with as little cost and revenue impact as possible. If a restructure is necessary, it is worthwhile considering availability of the Capital Gains Tax small business concessions.

For example, these concessions may be useful in separating some business assets – such as real property – from the trading entity for asset protection and succession planning purposes.

Business owners and their advisers should assess whether a business entity might qualify for the concessions under the $2 million turnover threshold:

  • It may be worthwhile to consider a restructure involving a sale of active assets in a financial year when the business turnover is less than $2 million, particularly where turnover is likely to be more than $2 million in subsequent years;
  • The $6 million net asset threshold is irrelevant if the $2 million turnover threshold is satisfied, and so the business entity may qualify for significant CGT concessions in one year which may not be available in subsequent years because the $2 million turnover threshold is exceeded; and

Similarly, owners and advisers should consider whether a business owner satisfies the $6 million net asset threshold in a particular year, and whether that threshold is likely to be exceeded in subsequent years. The Australian Taxation Office has been targeting claims for the small business CGT concessions in recent years, and so qualifying taxpayers are best advised to ensure that they qualify for the concessions, and have accurately calculated the net assets of all connected entities and affiliates. The ATO has been known to challenge market value assessments of assets, and the liabilities, which may be counted in calculating the $6 billion net asset threshold. The recent Byrne Hotels case, where the Commissioner appealed all the way to the High Court, is telling evidence of the Commissioner’s literal approach to applying the relevant tests.

Whether you are planning for retirement, looking at transitioning out of your business or are already retired and looking at what more you can do, Transition Planning is here to assist you.

Transition Planning Australia’s retirement planning tools, information and guidance will help you make the right decisions for your life after work and for the future of your business. For more information about developing a plan for your next phase and to discuss Succession Planning Strategies, speak with Transition Planning Australia today.

 

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