Tread carefully to avoid succession trip ups
Business owners have been encouraged to take a risk management approach towards succession planning.
Chartered accounting and financial planning firm Prosperity Advisers has warned small to medium enterprise (SME’s) owners when developing their succession plans to pay particular attention to the relationship between their business’ structure and its insurance policy in order to avoid potential tax liabilities.
Prosperity Advisers succession planning practice leader Megan Smith said business owners needed to seek expert advice to avoid unnecessary tax liabilities given that there had been no recent rulings by the Australian Taxation Office (ATO).
“The area business owners should be paying special attention to involves the tax treatment of insurance proceeds and the appropriate linkage of insurance policies to the provisions of the relevant legal agreements in place. Careful consideration needs to be given to the structure and level of insurance coverage in light of potential tax consequences,” Smith said.
“Continued guidance will help encourage best practice amongst business owners in developing more robust risk management strategies in relation to succession planning.”
Smith said an example of adverse tax consequences arising from legal provisions involves the common ‘mandatory’ ownership agreement between two or more parties, which is a business succession structure many SME’s have adopted.
“We would recommend a broader planning approach in the drafting of agreements and selection of insurance products supporting the range of scenarios that can lead to an ownership break up, and the subsequent tax implications.”
Recommended for you
Sequoia Financial Group has declined by five financial advisers in the past week, four of whom have opened up a new AFSL, according to Wealth Data.
Insignia Financial chief executive Scott Hartley has detailed whether the firm will be selecting an exclusive bidder for the second phase of due diligence as it awaits revised bids from three private equity players.
Insignia Financial has reported a statutory net loss after tax of $17 million in its first half results, although the firm has noted cost optimisation means this is an improvement from a $50 million loss last year.
With alternative funds being described as “impossible” for fund managers to target towards advisers without the support of BDMs for education, Money Management explores the evolving nature of the distribution role.
