High-net-worth families have been advised to establish robust succession planning between generations to avoid taxation issues and putting assets at risk.
More than $3.5 trillion in wealth is expected to be transferred between generations as large numbers of baby boomers head towards retirement.
McCullough Roberston Lawyers Partner David Hughes said a new ATO program, prompted in part by this Great Wealth Transfer, was focussed on the tax compliance of private groups with assets of more than $50 million.
“The ATO has flagged that baby boomer structures will be a focus of their compliance efforts this year,” Mr Hughes said.
“They haven’t said you cannot do succession planning, but people need to know there are many traps in the way you go about succession planning.”
The ATO’s Next 5000 private groups tax performance program comes as retirement-bound baby boomers undertake the greatest transfer of wealth in Australia’s history over the next 20 years.
Mr Hughes, an Accredited Specialist in Taxation Law, said succession structures needed to be set up correctly at the earliest possible time.
Under the succession planning umbrella, the ATO would be paying particular attention to rollovers (which are intended to assist people with restructuring) and the use of family trusts.
“Unfortunately, rollovers are complex, and the ATO will look closely and technically at the legislation to ensure that family groups correctly apply each element of the restructure,” he said.
“Additionally, the ATO has had an active campaign in relation to what they perceive as the misuse of family trusts for many years.”
Mr Hughes said it was important for individuals and family groups to ensure their financial and legal advisers worked together to set up succession structures.
It also helped to work with advisers who had long-standing, collaborative and direct relationships with the ATO in the Next 5000 program.
“The advantage is you have access to more senior people, who can act quickly to address potential issues, before they become a problem,” he said.
“Otherwise, there is a risk of an ATO auditor forming an entrenched position on an issue many years after the event, without the benefit of understanding all the facts and the context. This typically leads to a much lengthier audit and often the need to escalate the matter further; adding significantly to the cost, time and stress of the audit.”
Mr Hughes said the ATO’s Next 5000 program was taking a proactive approach to dealing with private groups.
“While this can appear intrusive to the family group, it can provide material benefits to the perceived tax risk of a company, particularly if the family is considering selling the company in the future,” he said.
“A clean bill of health from the ATO can give potential purchasers confidence that they will not inherit tax issues when acquiring the company. Moreover, the benefits of being able to sleep at night cannot be discounted.”
He said working with the ATO did not necessarily mean accepting every ATO position uncritically.
“The ATO will often take a broad approach to an issue that they view as particularly high risk. Just because they have this broad approach does not mean that there are not exceptions, based on the facts or the application of the law to the particular circumstances.”
“If an issue is identified in an audit as being within their own risk guidelines, it is often very difficult to convince the auditors that the matter should be considered an exception. Typically this will entail a lengthy audit process, and often further disputes with the ATO, potentially culminating in court or tribunal proceedings.”
“Being able to get ahead of the issue and deal with the ATO proactively almost always results in much better outcomes, both on the substance of the issue, and the process, typically saving significant time, costs and stress.”
Mr Hughes said McCullough Roberston Lawyers had worked with the ATO collaboratively on many matters.
“We find that we have much better results than treating every matter as drawn out combat,” he said.
He said the topic would be front and centre at the Private Wealth Network’s (PWN) annual Family Office Congress https://www.pw.network/pwn-family-office-congress-xvi/ on the Gold Coast in early May.
Interested groups can access relevant advice by contacting a McCullough Roberston Lawyers expert (https://www.mccullough.com.au/expertise_page/tax-structuring/) or subscribing (https://www.mccullough.com.au/subscribe/) for updates.
