Insights
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) has placed wealthy baby boomer Australians, particularly those with successful family-controlled businesses, under increased scrutiny. The ATO is closely monitoring how these individuals structure and dispose of their assets, assessing whether the tax outcomes align with regulatory expectations.
ATO’s Focus on Succession Planning
If you belong to the ATO’s Top 500 (Australia’s largest and wealthiest private groups) or Next 5,000 (Australian residents with a net wealth exceeding $50 million), expect heightened scrutiny on how money flows through the entities you control.
For many business owners, structuring assets is essential for asset protection, tax efficiency, and long-term business continuity. However, the ATO warns that if structuring is primarily for tax minimisation, it could trigger investigations under Part IVA of the tax rules, which combat “blatant, artificial, or contrived” tax avoidance activities.
“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 for the ATO
The ATO has identified several behaviours that could indicate tax avoidance under succession planning:
| ATO Red Flag | Description |
|---|---|
| Settling Division 7A Loans | Companies paying money to a shareholder or an associate under a loan account, with the ‘loan’ quickly settled (often via a distribution) to remove it from the books. |
| Transferring Assets Within a Business Group | If the true value of an asset is not recognised, the ATO questions whether the change is an attempt to avoid capital gains tax (CGT) or another financial advantage. |
| Restructuring Family Member Interests | Changing how family members hold stakes in business operations without clear commercial reasoning. |
| Amending Trust Deeds | Modifying the rules governing trusts to reallocate income or assets. |
| Using a Business Restructure as a Reason for Late Lodgment | Delayed tax filings that coincide with structural changes raise red flags. |
Trusts Under Increased Scrutiny
Trusts are a major focus area for the ATO in 2025, particularly where Family Trust Elections (FTEs) or Interposed Entity Elections (IEEs) are involved.
Key risk area: If a trust that has made an FTE or IEE distributes income outside the designated family group, a 47% Family Trust Distribution Tax applies (top marginal tax rate plus Medicare).
Additionally, the ATO has tightened its approach to closely held trusts, requiring more stringent reporting via Trustee Beneficiary (TB) statements. These statements are essential when trusts distribute income or assets to another trust. Failure to submit valid TB statements on time can trigger a 47% Trustee Beneficiary Non-Disclosure Tax—a significant financial penalty.
Reducing Risk in Succession Planning
For business owners managing multiple entities, particularly high-value businesses and assets, it is critical to:
- Assess the tax implications of any business restructuring, shareholding changes, or asset transfers.
- Review trust arrangements to ensure compliance with FTE and TB statement requirements.
- Understand international tax obligations if assets or interests extend overseas.
- Engage with tax professionals before making structural changes to avoid potential ATO scrutiny.
Transferring control of your business may involve restructuring your business operations – 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. All these events have legal and tax implications that need to be carefully considered
Plan for a Smooth Business Transition
Ensuring your succession plan is compliant and tax-efficient requires proactive planning. If you’re considering changes to your business structure, our team at Modoras can provide the guidance you need to navigate regulatory complexities.
Contact us today to discuss your succession and tax planning needs.
