Month: September 2022

Succession – Do you have a Five-Year-Plan and an Exit Strategy?

What are you doing to adequately prepare your business for its life beyond your management or ownership of it? Ideally, you will assess your business’s performance and its value and take steps to align those with your personal financial goals for your retirement.

Succession planning is a process best done in stages over a long period, usually five or more years. Many business owners look to their businesses to fund their retirement, so spending time to consider all aspects of an exit strategy is essential for a fruitful outcome for both the business and for you.

Why do you need a five-year-plan?

To improve the chance of success of your business as it is handed to the next generation in your family or to another person promoted to take on the business, a checklist of tasks undertaken over a period of years would constitute a holistic succession plan.

Here is a checklist of tasks. Though not an exhaustive list, these tasks are the main ones that would generally be handled in succession planning:

  • Establish the forward ownership goals of the business
  • Determine the managerial competencies required of a successor
  • Identify and qualify potential successor/s
  • Seek current management approval of chosen successor/s
  • Set up management protocols and procedures to ensure a smooth transition during the eventual exit of the current owner

Furthermore, a comprehensive checklist would also encompass financial planning tasks:

  • Understand current owner’s personal financial goals expected to be realised post-exit from the business
  • Valuation and potential growth of business assets and ongoing business entities
  • Calculate tax, including capital gains tax (CGT), of any structural changes, including transfer of assets to successor/s or other parties
  • Seek professional financial and legal advice for legal implications and tax consequences of the succession plan
  • Document all aspects – financial, managerial, procedural – of the succession plan

Succession planning is a tool to help you identify the current value and future competencies of your business. Likewise, having a clearly defined exit strategy as part of succession planning can expose best financial scenarios when the time comes to leave your business.

How do you exit a business?

Owning a successful business in Australia gives you opportunities, including a good lifestyle, a regular income and, in due course, can lead to retirement income. To achieve the goal of leaving behind a healthy and mature business, you will need to consider how you want to leave or ‘exit’.

Exiting a business can be done in numerous ways. Two common ways are:

Selling a business to a third party (open market) or to a strategic buyer, such as a competitor

During succession planning, particulars like transparent financials, IP protection, business asset preservation, staff retention, premises and/or equipment leases and legal formalities would be addressed and secured prior to any sales process commencing through a qualified agent.

Deciding to pass a business on to a child or another suitable successor

Just like selling a business, the details to cover in the succession plan are the same, however there is an extra consideration of whether you would choose to ‘gift’ a business without compensation. In this non-compensation scenario, a business valuation would be wise for tax purposes and seeking independent accounting and financial counsel would, likewise, be prudent.

Ultimately, an exit strategy can reward you for your years of hard work building a prosperous business. As a new operator comes on board, both your five-year-plan and exit strategy will prove to keep the business moving forward and, ideally, without the wheels falling off. You can enter your retirement with peace of mind.

How can YML help?

Talk to our YML Chartered Accountants Team today to see how YML Group can assist you with your succession planning. For more information, view our website and contact us on (02) 8383 4400 or by using our Contact Us page on our website.

Superannuation death benefits – review succession

First and foremost it is important to understand that the payment of your superannuation death benefits are covered by the rules of your SMSF trust deed and do not automatically form part of your Estate for distribution in accordance with the terms of your Will. As trustee of your SMSF, you will need to make sure that you have read and understood your SMSF’s trust deed and that you comply with it at all times.

On your death, one option is to rely on the SMSF trustee’s wide discretion to determine who, within the operation of the law, will receive your death benefit and how much each beneficiary will receive.

The alternative is to remove the trustee’s discretion which gives you greater control in deciding how your superannuation death benefits will be cashed. This may be relevant if:                                                          

  • You want certainty over your estate plan;
  • You have a blended family and want all family members to benefit from your superannuation on your death;
  • It is anticipated that there will be conflict amongst your potential beneficiaries;
  • It is a possibility that there may be conflict amongst the remaining trustees of your SMSF upon your death;
  • There is a risk that those controlling the SMSF post your death may not cash your death benefits in accordance with your preferences.

Subject to the specific terms of your SMSF trust deed, ways in which you could consider removal of trustee discretion include:

  • Having a valid and current binding death benefit nomination (BDBN) in place;
  • Specifying in your SMSF trust deed how death benefits will be distributed; or
  • Nominating a reversionary beneficiary to whom your pension will automatically revert to on your death.

To ensure that your death benefits are cashed in accordance with your wishes, it is critical to ensure that your estate plans are comprehensive and that you understand the ownership and control of your assets on your death. It is also important that any superannuation death benefit advice you receive is consistent and complimentary to your overall estate plans and is not in isolation to the other.

At a minimum, we recommend that trustees have their SMSF trust deed reviewed to ensure maximum flexibility when dealing with death benefit payments. It is also recommended this be done alongside a review of any BDBN(s) to ensure that they too are valid and provide certainty in how death benefits will be dealt with upon your death.

When considered in light of an ageing Australia, the value of assets invested in SMSFs and recent court cases, having the correct SMSF documentation and process is essential to minimise the risk of litigation from disappointed beneficiaries to allow a safe passage of death benefits to your intended beneficiaries.

So what should form part of a comprehensive SMSF estate plan? At a minimum it should contain:

  • An up-to-date Will
  • An up-to-date enduring power of attorney
  • An up-to-date SMSF trust deed, including prior variations
  • An up-to-date death benefit nomination (if applicable)
  • Up-to-date pension documentation (if applicable)
  • All trustee documentation, including details of directors and any trustee changes

How can YML help?

Talk to our YML Super Solutions Team today to see how YML Group can assist you with your estate plans. For more information, view our website and contact us on (02) 8383 4444 or by using our Contact Us page on our website.

Do you have yours by now? – Director Identification Number (DIN)

Enacted by the Australian Government as part of the 2020 Budget – Digital Business Plan, the mandatory registration of all Australian company directors is a new initiative to help:

What do you need to do?

Registration with the new Australian Business Registry Services (ABRS) maintained by the Australian Taxation Office (ATO) results in directors receiving a Director Identification Number or DIN. A DIN is a unique 15-digit numerical identifier. A director receives this DIN – a form of ID – once in a lifetime and it remains with a director even when changing companies.

Any director of a company or of a registered entity under the Corporations Act 2001 must acquire a DIN. It is free to apply.

How do you apply?

The ABRS directs you firstly to the myGovID app and then to apply through myGov. If you already have a myGovID, you can head straight to myGov. If you don’t have a myGovID, you can set one up. Use this link to learn how: How to apply for your Director ID (mcusercontent.com)

Another way to apply, if you live in Australia, is to call the ABRS and apply directly. You will be asked to verify your identity using your tax file number (TFN) and at least one identity document, as well as answer some questions. To call the ABRS, use this link: Contact us | Australian Business Registry Services (ABRS)

DEADLINE for Application for a DIN

Newly appointed directors within the past year will likely be aware of their requirement to register with the ABRS.

However, directors who have been in business for longer than the past 12 months must heed the deadline of 30 November 2022.

Note, even if you intend to retire soon, you will need to apply for a DIN and use it for the remainder of your directorship tenure.

 Date of appointment to Director under the Corporations Act 2001
 FREE Application by this date
 On or before 31 October 2021  By 30 November 2022
 Between 1 November 2021 and 4 April 2022  Within 28 days of appointment to Director
 From 5 April 2022  Prior to appointment to Director

Next Steps

YML Group has the expertise to determine your company position status and to assist you with your DIN application. You will be asked for your Tax File Number (TFN) to verify your identity as part of the application process. Penalties may be issued by the ATO for non-compliance with this new ‘Director ID’ law.

How can YML help?

Talk to our YML Chartered Accountants Team today to see how YML Group can assist you with your Director ID. For more information, view our website and contact us on (02) 8383 4400 or by using our Contact Us page on our website.