Why The ATO Is Targeting Baby Boomer Wealth
‘Succession planning, and the tax risks associated with it, is our number one focus in 2025. In recent years we’ve observed an increase in reorganisations that appear to be connected to succession planning‘.
ATO Private Wealth Deputy Commissioner Louise Clarke
The Australian Taxation Office (ATO) thinks that wealthy baby boomer Australians, particularly those with successful family-controlled businesses, are planning and structuring to dispose of assets in a way in which the tax outcomes might not be in accord with the ATO’s expectations.
If you are within the ATO’s Top 500 (Australia’s largest and wealthiest private groups) or Next 5,000 (Australian residents who, together with their associates, control a net wealth of over $50 million) programs, expect the ATO to be paying close attention to how money flows through the entities you control.
A critical issue for many business owners is how to effectively (and compliantly) benefit from a successful business. In many cases, the owners have spent years building the business and the business has become not only a substantial asset, but a lucrative source of income (either through salary and wages, dividends, or through the sale of shares or assets).
Generally, under tax law, you can legitimately structure assets if there is a good reason to do so – like for asset protection. But, if the only viable reason for a structure is to reduce tax, then you risk the ATO taking a very close look at your operations.
‘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)‘.
ATO Private Wealth Deputy Commissioner Louise Clarke said in a recent update.
Key areas of concern include:
- Companies settling Division 7A loans. That is, a company has been paying money to a shareholder or an associate under a loan account. The ‘loan’ is quickly settled, often via a distribution, to remove it from the accounts.
- Companies moving assets around the group (often the true value of an asset is not recognised).
- Family members restructuring their interests.
- Trustees amending their trust deeds.
- A restructure is cited as a reason for late lodgement.
Use of trusts.
Trusts are also a key area of concern in 2025. Where a trust which has made a Family Trust Election (FTE) or Interposed Entity Election (IEE) makes a distribution outside of the family group, a 47% Family Trust Distribution Tax applies (tax at the top marginal tax rate plus Medicare).
In addition, the ATO has recently tightened its approach to trust tax returns for closely held trusts. This will ensure trustees complete Trustee Beneficiary (TB) statements. Trustees must complete these when a trust makes a distribution of income or assets to the trustee of another trust.
For example, a trust which has made an FTE or IEE doesn’t need to make a TB statement. The ATO will use the TB statement to cross reference against what the beneficiary has declared in its tax return. If the beneficiary has not made a valid TB statement on time, it can trigger a hefty 47% Trustee Beneficiary Non-Disclosure Tax.
Reducing risk.
You will need to look at where you or your family have control over multiple entities closely to avoid any nasty surprises.
Transferring control of your business may involve:
- Restructuring your business operations. This includes changes to share structures, changes to the trustee and appointor of a trust, changes to partnership structures, or
- Transferring assets to family members via the creation of trusts or other entities.
You will need to consider the legal and tax implications of these events.
Please contact us for further assistance with your succession and tax planning.
This is general advice only and has not been prepared with your situation and needs in mind. For individual and personalised advice, we highly recommend that you seek out proper professional advice from your accountant and lawyer.
