Protecting private wealth under the proposed tax reforms
Grant Thornton encourages private business owners, family groups and their advisers to use the Government’s proposed tax reforms of 30 per cent minimum tax on discretionary trust distributions as an opportunity to review broader wealth preservation, ownership structures, governance frameworks and succession planning arrangements before financial pressure, disputes or unexpected events put enterprise value at risk.
An estimated $3.5 trillion is expected to transfer between generations over the next 20 years, creating significant opportunities and challenges for family-owned businesses, particularly those using discretionary trust distributions. At the same time, disputes involving family businesses are becoming increasingly common, particularly where ownership, control, valuation and future expectations have not been clearly documented.
While there are many tax implications resulting from the proposed reforms, there are also broader commercial considerations that can affect a family's long-term wealth and business continuity. Some Australian businesses may consider restructuring away from discretionary trusts into company or fixed trusts, however businesses could be at risk of stamp duty costs for the transfer of property and assets when restructuring.
John McInerney, Partner – Restructuring Advisory at Grant Thornton Australia said, “The proposed tax reforms should prompt a broader conversation about how wealth is owned, governed and transferred. Too often, families and business owners approach structural change as a tax project rather than a wealth preservation exercise, but the best time to address potential risks is before wealth, relationships or business value come under pressure. These proposed reforms provide an opportunity to step back and ask whether existing ownership structures, governance arrangements, and succession plans remain fit for purpose."
Restructuring discretionary trusts comes with high complexity and potential costs, and restructuring decisions should not be driven by tax considerations alone. Changes to legal structures can have wider implications across financing arrangements, asset protection strategies, succession plans, governance frameworks and stakeholder relationships. A co-ordinated review involving legal, tax, accounting and commercial advisers can help identify unintended consequences before changes are implemented.
“Effective intergenerational planning goes beyond wills and the transfer of legal ownership often requiring families to address difficult questions before circumstances force decisions. Many businesses are navigating changing dynamics as wealth passes between generations, and structures that worked under a founder's leadership may no longer be relevant as ownership expands across siblings and children. Clear governance arrangements, documented succession plans, and agreed pathways for dispute resolution can help families preserve value and maintain control when unexpected events occur," John McInerney continued.
Business owners and advisers should assess whether their current structures continue to serve a clear commercial purpose by reviewing legacy loans and intercompany arrangements, evaluating governance and ownership frameworks, and establishing contingency plans for key risks including incapacity, shareholder disputes or the loss of critical financial support. The objective is to maximise available options before external pressures limit them and early engagement with specialist advisers can provide more opportunities to protect enterprise value.