Succession Planning and Tax (Australia) 2025 Guide

Succession planning and tax is the structured process of preparing an Australian business for sale or handover in a way that legally minimises tax, preserves value, and reduces settlement risk by proactively managing capital gains tax (CGT), Division 7A exposure, GST, employee and superannuation liabilities, and entity/ownership structures well before a transaction occurs. In Australian practice, the difference between an orderly succession and a value-destructive exit is usually determined 12–36 months prior to sale—because eligibility for CGT concessions, contract allocation outcomes, and ATO audit defensibility depend on records, valuations, and “active asset” history that cannot be credibly reconstructed at completion.

What does “succession planning” mean for tax purposes in Australia?

Succession planning, for tax purposes, means designing the ownership transition so the legal form of the transaction produces the intended tax result and is supported by contemporaneous evidence. It is not limited to “who takes over”; it includes the tax consequences of transferring goodwill, equipment, property, contracts, staff, and IP.

From an Australian accounting practice perspective, succession planning should be treated as an integrated work program covering:

• Transaction structure (asset sale vs share sale; earn-outs; vendor finance)
• Entity and ownership structure (company/trust/partnership; family groups)
• Eligibility for CGT concessions and their ordering
• Pre-sale balance sheet “clean-up” (Division 7A, UPEs, related-party loans)
• Indirect tax and employment compliance (GST, PAYG withholding, super)
• Financial reporting quality, working papers, and ATO audit readiness

Why does tax planning materially change the sale price and settlement risk?

Tax planning changes sale outcomes because buyers price risk and uncertainty directly into purchase price, escrows, warranties, and completion accounts. ATO-facing issues rarely “average out”; they usually become negotiation leverage against the seller.

Common value-destroyers seen in Australian SME transactions include:

• Unreconciled BAS/GST and weak source documentation (increasing warranty/indemnity demands)
• Division 7A loans or shareholder debit balances not properly documented or repaid
• Unpaid superannuation guarantee (SG) risk leading to potential super guarantee charge (SGC) exposure
• Poor fixed asset registers and unsupported depreciation claims
• Ambiguous treatment of goodwill (especially where personal goodwill vs business goodwill is contested)
• Trust distribution minutes, unpaid present entitlements (UPEs), and related-party arrangements lacking clear documentation

ATO guidance and legislation are central here because buyers will test whether positions are reasonably arguable and evidenced. For example:

• Capital gains tax framework: Income Tax Assessment Act 1997 (ITAA 1997), especially Parts 3-1 and 3-3.
• Small business CGT concessions: ITAA 1997 Division 152.
• Division 7A: Income Tax Assessment Act 1936 (ITAA 1936), Division 7A (private company loans/debt forgiveness/payments to shareholders and associates).
• GST on sale of enterprise / going concern: A New Tax System (Goods and Services Tax) Act 1999, including going concern provisions (commonly applied in asset sales).

Is an asset sale or a share sale better in Australia?

There is no universally “better” option; the optimal approach depends on who the seller is, the entity type, the assets, and whether the buyer wants to acquire historical liabilities. In practice, buyers often prefer asset deals (to avoid unknown liabilities), while sellers often prefer share deals (potentially simpler, and may access different tax outcomes).

Key tax and commercial differences Australian accountants must model early:

• CGT and concessions
• GST
• Liabilities
• Transfer duty and states

Practical point: the “best” structure is usually the one that preserves negotiating power and keeps the transaction within a defensible tax framework supported by documentation, valuations, and reconciled reporting.

How do the CGT small business concessions apply to succession planning?

The CGT small business concessions are often the primary tax lever in Australian SME exits, but they are highly technical and evidence-driven. The concessions are in ITAA 1997 Division 152, and eligibility typically turns on:

• Basic conditions (including a CGT event and satisfying the relevant size tests)
• The active asset test
• Special rules for shares/units (including “significant individual” and participation percentage tests)
• Additional conditions depending on which concession is claimed

In succession planning engagements, the high-risk failure points usually include:

• Inability to substantiate that the asset was an “active asset” for the required period
• Group turnover or net asset value thresholds not properly analysed at the CGT event time
• Misalignment between who owns the asset and who operates the business (common in family groups with trusts and related entities)
• Poor records of business use of property (especially where property has mixed use or is leased to related parties)

Real-world scenario (common in practice): A family trust operates the business but the business premises are owned in a separate entity and leased. If documentation and conduct do not support the premises being an active asset (and the lease is not on appropriate commercial terms), concession eligibility may be challenged or reduced. This is why planning must begin well before the intended exit.

Professional practice note: The ATO expects contemporaneous records and consistent conduct, not reconstructions. Planning should include documented business use, lease arrangements, and clear financial allocations.

What is the tax treatment of goodwill when selling a business?

Goodwill is frequently the largest value component in Australian business sales and is usually a CGT asset. The tax outcome depends on:

• Whether goodwill is recognised as business goodwill (a CGT asset of the business) rather than purely personal goodwill
• The sale structure (asset vs share)
• The purchase price allocation across assets (which affects CGT vs revenue outcomes and depreciation balancing adjustments)

ATO and case law principles in this area require careful application, particularly where the business depends heavily on an individual’s reputation. In practice, accountants should ensure:

• The sale contract’s allocation is supportable (and consistent with valuation evidence)
• The allocation aligns with the economic substance (buyers will scrutinise this)
• The working papers clearly document the rationale for the allocation and tax treatment

How do Division 7A and trusts affect business handovers?

Division 7A and trust integrity issues are among the most common “surprise” problems found during due diligence, and they can materially reduce sale proceeds.

Key risk areas:

• Shareholder loan accounts overdrawn in a private company (or loans to associates)
• Division 7A complying loans not properly documented, or minimum yearly repayments not met
• Trust distributions and UPEs creating complicated related-party balances and potential Division 7A implications where private companies are beneficiaries
• Lack of timely documentation (loan agreements, minutes, distribution resolutions)

From an Australian compliance perspective, the seller should aim to enter the sale process with:

• Cleared or properly documented Division 7A positions
• Evidence of repayments and calculations (including benchmark rate application where relevant)
• Clean inter-entity balance schedules that reconcile to financial statements

Practical example: A buyer discovers a material shareholder debit balance and no complying loan agreement in place. Even if the seller believes it is “just drawings”, the buyer will price in the risk that it could be treated as a deemed dividend under Division 7A, and will demand a price reduction or escrow.

What GST and BAS issues should be fixed before selling a business?

GST and BAS integrity is a core diligence area because GST errors can be systemic and may indicate broader control weaknesses. Preparation should focus on reducing ATO dispute risk and giving buyers confidence in the numbers.

Pre-sale checks typically include:

• GST coding integrity review (top suppliers/customers, high-value categories, mixed supplies)
• BAS-to-general-ledger reconciliation for at least 12–24 months
• Review of GST on deposits, adjustments, bad debts, and private use
• Confirm whether sale can be treated as a GST-free going concern (and ensure contract clauses and conditions are correctly drafted)

It should be noted that the GST-free going concern outcome is not automatic; the legal requirements must be met and documented at the time of supply, and the buyer must be registered or required to be registered.

What employee, superannuation, and payroll liabilities matter at exit?

Employee liabilities can derail settlement because they affect completion accounts and can create post-completion claims. In Australia, the key exposures include:

• Superannuation guarantee shortfalls and potential SGC
• Unreconciled leave provisions (annual leave, long service leave)
• PAYG withholding compliance issues
• Contractor vs employee classification risk (which can also affect super and payroll tax at the state level)

In a share sale, these exposures typically transfer with the entity, increasing buyer caution. In an asset sale, employee transfer arrangements must be carefully handled, and leave/entitlement outcomes must be agreed and documented.

How should you prepare financial statements and due diligence packs for a sale?

A sale-ready business has financial statements that are internally consistent, reconcilable, and supported by working papers. Due diligence is not merely about producing reports; it is about demonstrating control and audit defensibility.

A robust preparation pack usually includes:

• Reconciled bank accounts and transaction support (source documents, consistent coding)
• BAS/IAS/ITR reconciliation files aligned to ATO lodgments
• Fixed asset register with depreciation methods and supporting invoices
• Aged receivables/payables with subsequent receipts/payments testing
• Related-party balance schedules (loans, distributions, management fees)
• Key contracts, leases, and customer concentration analysis
• Normalisation adjustments with clear rationale (owner wages, one-offs, related-party expenses)

Practical reality: If a buyer’s accountant has to rebuild reconciliations, they will assume there are more issues than reported—and the price will move accordingly.

When should succession planning start, and what is the best timeline?

Succession planning should commence 12–36 months before a planned sale or handover. This timeframe is used to establish eligibility for concessions, stabilise earnings, clean up balance sheet risks, and produce high-quality financial evidence.

A typical timeline used in Australian accounting practice:

1. 12–36 months out
2. 6–12 months out
3. 0–6 months out

How do you structure a handover to family or staff without triggering unnecessary tax?

A family or management succession can still trigger CGT and other consequences, even if there is no “arms-length” sale. The tax law generally looks at what has been disposed of and whether market value substitution rules apply.

Key planning tools (must be assessed case-by-case):

• Gradual equity transfer with governance controls
• Sale at market value supported by valuation evidence
• Consideration of funding mechanisms (including vendor finance implications)
• Estate planning interfaces (wills, enduring powers, trust deeds, appointor succession)
• Ensuring documentation aligns with conduct (minutes, resolutions, contracts)

Because these arrangements often involve related parties, documentation and valuation evidence must be particularly robust to withstand ATO review.

What are the most common mistakes accountants see in Australian succession planning?

The most common mistakes are predictable and avoidable:

• Waiting until the business is “on the market” to address Division 7A and trust balances
• Assuming CGT concessions apply without testing the active asset and ownership conditions
• Treating BAS reconciliation as an afterthought
• Failing to separate personal expenses from business expenses consistently
• No defensible purchase price allocation across assets (especially goodwill)
• Inadequate documentation of related-party arrangements (leases, management fees, loans)

How can AI accounting software improve sale readiness and tax defensibility?

AI accounting software improves sale readiness by shortening the time to produce reconciled, consistent records and by reducing human error in transaction categorisation, GST coding, and working paper production. In practice, stronger and faster reconciliations reduce buyer risk perceptions and enable earlier identification of tax exposures.

From an Australian practice workflow standpoint, AI-driven automation is particularly valuable for:

• Automated bank reconciliation and exception handling
• BAS and GST integrity checks using consistent categorisation rules
• Automated working papers to support tax positions (e.g., Division 7A schedules, depreciation schedules)
• Faster monthly close cycles, improving financial trend reliability for valuation

This is where MyLedger (Fedix) is relevant for Australian accountants who need sale-ready books quickly:

• MyLedger: AI-powered automated bank reconciliation (often 10–15 minutes per client vs 3–4 hours), improving month-end discipline and audit trail quality.
• MyLedger: Automated working papers (including Division 7A and depreciation workflows) to support ATO-facing positions and buyer due diligence.
• MyLedger: ATO integration capabilities that assist with aligning internal reporting to lodgment history and obligations tracking.

Next Steps: How Fedix can help your practice prepare clients for exit

Fedix helps Australian accounting practices systemise succession-readiness by automating the “proof work” that buyers and the ATO care about: reconciliations, GST integrity, and defensible working papers. If your firm is supporting clients through a sale or family handover, consider adopting MyLedger by Fedix to reduce reconciliation time by up to 90% and to standardise compliance packs across your client base.

1. Build a succession-readiness checklist (CGT, Division 7A, GST, super, related parties).
2. Implement monthly reconciliation discipline and lock down GST coding rules.
3. Produce a vendor due diligence pack supported by working papers and source documents.
4. Evaluate MyLedger to automate reconciliations and working paper production, freeing senior staff for structuring and negotiation support.

• Automated bank reconciliation for BAS accuracy in Australia
• Division 7A compliance workflows and MYR management
• Preparing vendor due diligence packs for SME transactions

Frequently Asked Questions

Q: When should succession planning start for tax purposes in Australia?

Q: Does selling a business trigger CGT even if I hand it to family?

Q: What is the biggest tax risk that reduces sale price in SME deals?

Q: Can a business sale be GST-free in Australia?

Q: How can accountants make a business “due diligence ready” quickly?

Conclusion

Succession planning and tax in Australia is fundamentally an evidence-driven exercise: transaction structure, CGT concession eligibility, Division 7A integrity, GST/BAS accuracy, and payroll compliance must be resolved before the business is marketed to protect value and reduce settlement risk. Australian accounting practices that systemise reconciliations, working papers, and ATO-aligned reporting place their clients in a stronger negotiating position and materially increase the probability of a clean exit.

Disclaimer: This content is general information only and does not constitute legal or tax advice. Tax laws and ATO guidance change frequently, and outcomes depend on specific facts. Advice from a registered tax agent and, where relevant, a qualified legal practitioner should be obtained for your circumstances.