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
Insignia Financial is targeting its salaried financial advisers increase their revenue per adviser by 62.5 per cent over the next five years.
AWAG and Teaminvest Private Group have teamed up to offer a succession lending fund to help advice principals navigate succession planning and enjoy their retirement.
LGT Crestone chief executive Michael Chisholm believes the firm was chosen to acquire Commonwealth Bank’s personal advice arm due to its strong private market capability.
Advisers will now be able to tap into global markets on the platform through international signature managed accounts from global managers like T. Rowe Price and Lazard.
