Transferring control of your business or wealth to family members may involve restructuring your business operations, such as:
- changes to share structure
- changes to the trustee and appointor of a trust or changes to beneficiaries
- changes to partnership structures, or
- transferring assets to family members via the creation of trusts or other new entities.
All these events have legal and tax implications that you need to carefully consider.
You should fully document any significant changes to your business structures or operations (including any asset disposals), along with their tax impact. Ensure you properly document information on your assets, such as acquisition date and cost base, improvements and any valuations. This will also ensure that any subsequent disposals of the assets can be treated correctly for tax purposes.
For example, when you dispose of or transfer your business assets there will likely be capital gains tax (CGT) consequences. The sale of a business can also trigger liabilities for GST.
Where a pre-CGT asset is involved, you should also understand and document whether the asset has retained its pre-CGT status. Issues for consideration include whether changes in beneficial interest impact the pre-CGT status of the assets or shares.
Example: transferring your business to a family member
As the owner of a successful family business, you prepared a basic succession plan many years ago. Since then, your business has expanded and your children have grown up. Your son now works with you in the business. You would like to see him take over when you retire.
You discuss with your adviser how best to transfer the business to your son and transition to retirement. They explain the tax consequences of the transfer. They also alert you to other options and tax considerations.
You decide to restructure your business as a family trust. Then you can still have some control of the business while reducing your involvement in the day-to-day operations.
As you have decided on your current strategy, you update your succession plan and document the tax consequences. Once the business is transferred, you retain documentation evidencing the transactions that have tax impacts. You can now ensure you reflect this correctly in your tax returns.
End of exampleFor more information, see Changing, selling or closing your business.