The Australian Taxation Office (ATO) is keeping a close eye on the wealthiest Australians, particularly baby boomers with successful family-controlled businesses. As these business owners approach retirement, many are focusing on succession planning and structuring to ensure their assets benefit future generations. However, this planning could raise red flags for the ATO if it appears to be geared more toward tax avoidance than legitimate business decisions. Here's what you need to know about this shift in focus and the risks involved.
A New Priority for the ATO
“Succession planning, and the tax risks associated with it, is our number one focus in 2025,” says ATO Private Wealth Deputy Commissioner Louise Clarke. She notes that there has been a marked increase in business reorganisations that seem to be tied to succession planning.
The ATO is particularly concerned about how baby boomer business owners are structuring their assets in ways that might not align with the agency's expectations. As these business owners plan for retirement, they are seeking ways to pass on their wealth, often using strategies that the ATO might interpret as an attempt to reduce tax liabilities.
Who's Under the ATO's Microscope?
If you're part of the ATO’s Top 500 (Australia’s largest and wealthiest private groups) or the Next 5,000 (Australian residents who, together with their associates, control net wealth over $50 million), expect the ATO to be closely monitoring how money flows through the entities you control. These high-net-worth individuals are prime targets for scrutiny as they may possess large, family-owned businesses that generate significant wealth.
In many cases, business owners have spent years building up their companies, making these assets both a substantial source of income and a key part of their overall financial portfolio. For many, this means extracting value in the form of wages, dividends, or the sale of shares or assets.
The law allows for the legitimate structuring of assets for various purposes—such as asset protection—but the ATO is keen to distinguish between legitimate business structuring and actions that may solely aim to reduce tax liabilities.
The ATO is looking for signs of “blatant, artificial or contrived” tax avoidance. This is where things can get tricky. If the primary motivation behind a restructure is simply to reduce tax, the ATO may take issue with the arrangement under the general anti-avoidance rules found in Part IVA of the tax law.
Louise Clarke explains that the ATO is particularly concerned with how succession planning is being carried out, especially when it comes to family-owned groups. “We’re seeing that succession planning behaviour is primarily done by group heads who are approaching retirement. They typically own groups that family members are a part of, and wealth is transferred to the next generation to keep it within the family (via trusts and other means).”
Key Areas of Concern
There are several specific areas the ATO is keeping a close eye on as part of its scrutiny on baby boomer wealth planning. These include:
Division 7A Loans Being Settled
Many businesses make loans to their shareholders or associates. The ATO has been monitoring situations where these loans are rapidly settled, often through distributions, to remove them from the company’s accounts. This could be seen as a way of avoiding tax liabilities.
Asset Transfers Within the Group
The ATO is also watching for instances where assets are moved between entities within a family-controlled group, especially if the true value of the asset is not recognized. The question the ATO may ask is: why the change if not to avoid capital gains tax on the disposal or to secure some other tax advantage?
Family Member Interests Being Restructured
As part of succession planning, business owners may restructure the ownership interests of family members in the business. The ATO is concerned about whether these changes are made for valid business reasons or simply to reduce tax obligations.
Amendments to Trust Deeds
Another common tactic for wealth transfer is the use of family trusts. The ATO is scrutinizing any amendments made to trust deeds, especially when the amendments are made close to a business owner’s retirement. These could be flagged as attempts to shift wealth or minimize tax.
Late Lodgement of Tax Returns Cited as a Restructure Reason
In some cases, business owners have used the excuse of a restructure as a reason for late lodgement of tax returns. The ATO will be looking at whether these restructures are legitimate or simply a tactic to delay tax reporting and reduce tax liabilities.
If you are part of Australia's wealthiest groups, it’s a good idea to consult with tax professionals and legal advisors to ensure that your succession planning and asset structuring efforts are both compliant with current tax laws and aligned with the ATO’s expectations. Being proactive about tax compliance can help you avoid unwanted scrutiny and ensure that your legacy remains intact for future generations.
By staying informed and seeking expert guidance, you can continue to protect and grow your wealth while navigating the complex landscape of tax regulations in 2025 and beyond.
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