Due to the increasing number of business owners forecast to retire in the next decade, the effect of tax liabilities on succession planning needs more attention, according to financial planning firm Prosperity Advisers.
Prosperity Advisers succession planning practice leader Megan Smith said the current structure of small-to-medium enterprises (SME) may see a significant increase in tax consequences, when it comes to succession planning.
"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 agreement in place," Smith said.
"Careful consideration needs to be given to the structure and level of insurance coverage in light of potential tax consequences."
Smith also said a legal provision that may create negative tax implications is the mandatory ownership agreement between two or more parties, which many SMEs are exposed to.
Making the issue more complex is the fact that there are no Australian Taxation Office (ATO) rulings on succession planning.
Prosperity Advisers has been conducting workshops with different industry groups to create awareness of some of the issues.
"Continued guidance will help encourage best practice amongst business owners, in developing more robust risk management strategies in relation to succession planning," Smith said.
Integrated Financial chief executive officer Peter Moyle said there has been an increase in demand for financial advice on succession planning and business protection solutions over the last five years.
