Stress Free Business Transition - It's a choice
Grahame Allen • Mar 23, 2017
Stress Free or Stressful" Business Transition to New Owners – It's a Choice
Blueberry Trailers was established by Jack Jones in 1970. Since its humble beginnings as a husband-and-wife-based business, the company has grown to manage 30 team members across two factories and build approximately 50 custom trailers per year.
That said, along the way it has had its struggles.
In 2012, Jack suffered a non-fatal heart attack and it suddenly became his children's responsibility to keep the business alive while their father recovered in the hospital. The transition in management wasn't easy. Dave and Peter were forced to step into their roles at a young age. They had no training or knowledge of their father's role. Jack had set up a great business but it was 'a handshake type of business'; nothing was documented properly. Processes, procedures and analysing business performance was almost non-existent.
This is a problem that commonly occurs in the family-run business space.
Accountant's Role – Trusted External Advisor
Davy and Peter agreed the best strategy was to seek help and to work with an external trusted advisor. They chose their accountant who had a good knowledge of the business and who knew their father. Bringing in an external party allowed their family to hear a well-educated objective opinion and kept everyone's egos out of the way. With the Accountant's guidance, they 'flipped the business on its head'. It took about two years of financial struggle and hard work but the business started to change and it has been for the better. The company has continued to thrive ever since.
The Result
With their Accountant's help, Dave and Peter implemented new strategies in their family business. They successfully took over from their father and now have 30 team members across two factories.
Dave says, 'Dad was really apprehensive. Although they say you can't teach an old dog new tricks, Peter and I insisted we could prove that we could get the job done and we did. And we enjoy having our weekends off.'
Imagine how much easier this process would have been if Jack had committed to succession planning. The issues would have been identified earlier and corrected. His sons, his team and his business would have been prepared for the event. Succession Planning would most certainly have made the unplanned leadership transition a stress free, organised event. Instead it was 2 years of struggle albeit with a happy ending.
Changes to simplify reporting for trustees and beneficiaries are commencing from 1 July 2024 as a part of the Modernisation of Trust Administration Systems (MTAS) project. From that date, labels in the statement of distribution, which is a part of the trust tax return, will be modified, a new schedule will be introduced for all trust beneficiary types, and new data validations will be added. Looking at each of these changes in depth, from the 2023-24 income year and onward, four new capital gains tax (CGT) labels have been added into the trust tax return statement of distribution. These changes will enhance the ability of trustees to appropriately notify beneficiaries of their entitlement to income and support the calculation of the CGT amount in individual tax returns. The ATO recommends that all beneficiaries obtain copies of the trust statement of distribution as it relates to their individual entitlements. This will allow beneficiaries to include the correct information in the new trust income schedule. The trust income schedule instructions will demonstrate how the information on the tax statement provided should be reported on the trust income schedule. This also includes trust income from a managed fund. It should be noted that beneficiaries will still need to complete existing trust income labels in beneficiary income tax returns as this new trust income schedule will not replace any existing trust income labels. Individual beneficiaries who lodge via MyTax will receive prompts about the additional reporting of trust income. In addition to these reporting changes, the ATO has reminded trustees that where beneficiaries’ entitlements reflected in trust resolutions are subsequently changed by either arguing the resolution as invalid, defective or made at a different time, it should be notified as an affected party where the change triggers tax consequences. For context, to ensure that beneficiaries are presently entitled to trust income, discretionary trusts are usually required to make a resolution by 30 June of any specific income year. For those specifically entitled to a capital gain, trustees of discretionary trusts must make a resolution in respect of that capital gain by 31 August following the income year in which the capital gain is made. According to the ATO, high-risk behaviours by trustees can include altering trust resolutions after tax returns are lodged, failing to inform the ATO of errors in trust deeds or their administration, and making decisions that affect the tax liabilities of a trust, such as early vesting, without notifying the ATO. These actions can lead to disputes over entitlements, amended assessments, and the potential for tax fraud or evasion charges if the issues are not promptly and transparently addressed with the ATO. The ATO notes that it is critical for trustees of trusts to maintain open and honest communication with the ATO, as failure to do so may lead to serious consequences, including the possibility of amended tax assessments for fraud or evasion (which are not limited by the standard four-year review period) and the imposition of significant penalties. The need for trustees to promptly advise the ATO of any mistakes in the trust deed or in the administration of the trust to prevent legal and financial complications cannot be overstated.
In response to the ATO's recent actions on re-activating or off-setting old debts, the Commonwealth Ombudsman/ACT Ombudsman, and the Inspector-General of Taxation and Taxation Ombudsman (IGTO) have jointly issued new guidelines aimed at improving how Australians are notified about government debts. The publication outlines principles designed to ensure that the process of debt notification is handled with transparency, clarity and sensitivity towards impacted individuals. Mr Iain Anderson, serving as both Commonwealth Ombudsman and ACT Ombudsman, together with Ms. Karen Payne, Inspector-General of Taxation and Taxation Ombudsman, emphasized the importance of government agencies adopting a compassionate and principled approach when dealing with debt notification. "While the law may require agencies to take certain actions, it is crucial that these actions are taken in a manner that minimizes distress," they stated. The guidelines propose five key principles for the ATO and other government departments to consider when conducting programs: Transparency and Accountability - agencies should communicate clearly why the debt has arisen, fostering trust and confidence in the process. Clarity on the Debt's Origin - individuals should understand the source and nature of the debt, tailored to the recipient's circumstances. Clear Pathways for Review - information on how to request a review of the debt, apply for waivers, and arrange repayments should be readily accessible, ensuring individuals understand their rights and options. Accessible Support - contacts for further assistance must be provided, acknowledging that people may have additional questions or need personalized support. Commitment to Improvement - the process of debt recovery should be viewed as an opportunity to learn and enhance future practices based on oversight recommendations and past experiences. Also noted was the significance of reflecting on past interactions and the recommendations from oversight bodies to continually elevate how agencies engage with the community regarding sensitive matters such as debt recovery. Taxpayers who have an unresolved complaint or dispute with the ATO are able to lodge a dispute with the IGTO to receive independent assurance. IGTO will conduct an independent investigation of the actions and decisions that are subject of the dispute and can help taxpayers better understand the actions taken by the ATO and/or independently verify whether shortcomings exist in ATO’s action or decision which should be rectified, as well as identifying other options taxpayers may have to resolve their concerns. For example, in one case study, the IGTO assisted a taxpayer to verify whether the full amount of general interest charge had been remitted on their tax debts. In another, after a taxpayer’s original request for the Commissioner to exercise his discretion to advance their refund instead of offsetting against their tax debt due to imminent risk of homelessness was denied, the taxpayer lodged a dispute with the IGTO. Following urgent discussions between the IGTO and senior ATO officers, the ATO reversed their decision, and the taxpayer received his refund. The IGTO can also intervene in cases where the ATO has used family assistance payments to offset tax debts. According to another one of IGTO’s case studies, the ATO used a Centrelink Family Assistance (CFA) payment to offset a tax debt that a taxpayer had. At the time, the taxpayer was unemployed and supported two minors along with an ageing parent and relied on the payment. After IGTO intervention, the ATO agreed to refund the offset recognising it was not appropriate to pursue debt collection given the circumstances. Taxpayers interested in lodging a dispute with the IGTO should note that they must have first attempted to resolve the complaint directly with the ATO unless special circumstances exist. Those that remain unsatisfied with the ATO response should then lodge a formal complaint with the ATO for review. If taxpayers are still unsatisfied with the outcome of the ATO review, they can then lodge a dispute with the IGTO for an independent investigation either online or via post or phone.
The end of the FBT year is upon us once again. Employers that have provided their employees with fringe benefits any time during the 2024 FBT year – 1 April 2023 to 31 March 2024 – will need to lodge an FBT return and pay any liability by 28 May 2024. With the landscape of FBT evolving every year due to legislative amendments and administrative updates, employers need to be mindful of the changes applying for the current FBT year. While the electric vehicle exemption came into effect on 1 July 2022, many employers have only recently started ramping up the purchase or leasing of electric vehicles due to a combination of waiting for previous leases to expire and a temporary shortage of electric vehicles. As a refresher, employers are now exempt from paying FBT on benefits related to eligible electric vehicles under the condition that the vehicles are zero or low emissions, first held and used after 1 July 2022, never subjected to luxury car tax, and utilised by current employees or their associates. It should be noted that car expenses associated with providing eligible electric vehicles are also exempt, which includes registration, insurance, repairs and maintenance and fuel (including the cost of electricity to charge electric cars). Other expenses that are not exempt may be reduced by the otherwise deductible rule if the expenditure would have been deductible to the employee had they incurred it themselves. To provide certainty for employers, the ATO recently issued Practical Compliance Guideline PCG 2024/2, offering guidance on calculating electricity costs for charging electric vehicles at an employee’s home. This guideline provides a methodology for employers and individuals to calculate electricity costs, either by using the outlined approach or by determining the actual cost, facilitating the inclusion of these costs in FBT and income tax calculations. In addition, employers that provide cars to their employees should also be aware of the recent updates to the car parking fringe benefits to reflect the latest Taxation Ruling, TR 2021/2, offering clarity on modern car parking arrangements and compliance requirements. In another change for the 2024 FBT year, the ATO has simplified employee declarations in relation to some fringe benefits to ease the administrative burden for both employees and employers. The new declarations remove the requirement for employees to declare the make and model of cars for specific transport-related benefits, including remote area holiday transport and overseas employment holiday transport, among others. Similar to previous FBT years, employers that lodge FBT returns electronically through tax practitioners will have access to a deferred due and payment date of 25 June. This only applies to electronic lodgments and any paper returns lodged through tax practitioners will still have 25 May as the due and payment date. For employers that have registered for FBT but do not need to lodge a return for the 2024 FBT year, a notice of non-lodgment should be submitted to the ATO by the time the FBT return would normally be due (ie by either 25 May or 25 June) to prevent the ATO from seeking a return at a later date. The regulatory environment surrounding FBT continues to evolve; for example, recently the ATO registered instruments to allow employers the option to utilise existing records instead of statutory evidentiary documents for certain benefits from 1 April 2024 (ie the 2025 FBT year). Therefore it is crucial to stay up-to-date and well-informed to navigate the complexities of FBT compliance.
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