Privately owned and wealthy groups – Significantly wealthy businessman, entering retirement
‘I want a succession plan to transfer my business to my daughter and ensure I am comfortable in my retirement.’
I worked hard to accumulate my wealth. Now it’s time to pass on my legacy to my children, and grandchildren. I’ve paid plenty of tax in my time and I want to make sure they get the most out of what I give to them without leaving them with any problems.
My advisor George has been with me since the beginning and he’s never steered me wrong. I told him that I wanted to put my daughter Melanie in charge of the business and have her take over majority ownership of the group. George recognised the potential tax risks associated with my plans, so he engaged Stephan, a specialist in estate planning and wealth transfer.
Stephan suggested we use a structure to minimise the tax that would otherwise be paid on this type of transfer. He said he’d done it before so I left it in their hands. I signed some documents in June and began handing over the business to my daughter. Later in the year, my personal assistant let me know that the ATO had contacted George. Apparently an issue came up with my group’s tax returns linked to the transfer of the shares, and the ATO were coming to talk to him. I told George to just sort it out with Stephan.
The ATO officers met with Stephan and George to explain their concerns. George started becoming worried when, before the meeting, Stephan advised him not to say anything and not to provide some specific information on the arrangements. After the meeting, the ATO tried to contact Stephan to request additional information. After multiple unsuccessful attempts, the ATO exercised their access powers at Stephan’s office, making digital copies of relevant documents.
As key contact for the group, George was notified of this action and wasn’t happy with Stephan’s behaviour and conduct and frankly neither was I. George terminated Stephan’s services.
George felt we’d be better off if we adopted a more cooperative approach and I agreed. After discussions with the ATO to provide information on what had happened, George accepted the ATO’s offer to go to mediation to resolve this as quickly as possible.
We chose our mediator from a panel of ex judges from a list available on the ATO website. The ATO representatives were very professional and explained their position and their understanding of my group’s arrangements and the situation. With the mediator’s assistance, we were able to come to a resolution quickly – I was impressed, that’s good business. I ended up having to pay the tax I should have paid in the first place and interest on the underpayment.
They accepted we were genuinely unaware of the implications of the arrangements and we were trying to do the right thing. George and I learnt a valuable lesson about accessing specialist advice – I know I am ultimately responsible for my affairs. Thanks to the ATO’s proactive and cooperative attitude, the whole thing was less costly than it might have otherwise been. Now I can retire and Melanie can focus on her new leadership role.
What the ATO does
- When George lodges Jonathan’s income tax return our system flags any issues with the transaction. George is notified immediately through his practice software.
- When George is notified of issues, his practice software allows him to choose a suitable time to meet with the ATO.
- Our systems direct the compliance activity to staff based on current workloads and the areas of the law, in this case SMSF, capital gains tax and valuations.
- We are clear in our information requests and exercise our access powers to create digital copies. We provide the client with this copy and a digital recording of the conversation.
- Our staff have the tools, capability and skills to deliver this experience.
- Before mediation, we determine our ATO position and know the settlement parameters for the potential resolution.
- We may contact Stephan’s clients to outline the risks of similar transactions, encourage transparency and support corrective action if required.
How the ATO behaves
- We willingly share information, insights and experience and proactively raise issues with clients.
- We are supported to take ownership, exercise judgment and make timely decisions.
- We understand and consider our clients' circumstances and offer a fair and differentiated service.
- We are pragmatic and fair in our decisions.