Western Sydney Business Access Family Business - September 2020

WESTERN SYDNEY

Family Business Welcome

With David Pring

Welcome o KPMG Family Business ea ure ar icles. I you would like o discuss hese ar icles or how KPMG can help wi h your business please eel ree o con ac me on 9455 9996 or davidpring@kpmg.com.au

Calling on he nex genera ion How the next generation will help families thrive in the New Reality n TOM MCGINNES N he all o 2019, he Success ul ransgenera ional En repreneurship Prac ices (S EP) Projec Global Consor ium released he 2019 Global Family Business Survey, o which KPMG Priva e En erprise con ribu ed i s insigh s.

Te repor probed how amily businesses hroughou he world are dealing wi h succession and governance challenges in ligh o changing social demographics.

We didn’ realize he degree o which hose challenges would be amplifed in he coming mon hs as he head-on impac o COVID-19 led many amily business owners o seek new ways o sus ain he legacy o heir companies.

For many, succession and governance issues and he need o draw on innova ive, mul i-genera ional ideas or he u ure came o he ore ron . egardless o he amily business si ua ion a any par icular poin in ime, one principle holds rue: here will (and should) always be ques ions abou wha comes nex , including who will ake over when i ’s ime o re ire.

Many amily business CEOs wan he nex genera ion o con inue building on he ounda ions hey laid. Bu how migh hose ounda ions need o change or he new reali y ahead? And how can you be sure he nex genera ion is ready o ake he business in ha direc ion?

Te resul s o he 2019 Global Family Business Survey o er valuable ideas and insigh s abou planning or his ransi ion in your business.

Addi ional in-dep h in erviews wi h amily business leaders across he globe provided us wi h frs hand and pro ound perspec ives on many succession issues.

I encourage you o learn abou heir personal views and succession experiences when hese amily s ories are published in a series o ar icles on he KPMG websi e beginning in Oc ober.

worldwide plan o re ire be ore heir 50 h bir hday.

Te 2018 Millennial Impac epor also ound ha his group ends o avour social issues over ins i u ions, is requen ly in uenced by he ac ions o heir peers, and cares abou how heir ac ions can make posi ive changes in heir world. All o hese rai s can a ec he way Millennials run a amily business.

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Why succession planning is needed now One fnding was ha 15 percen o all Nor h American amily businesses are led

by CEOs rom he “Silen Genera ion” born be ween 1925 and 1945, and more han double he global average.

Millennials can lead the new reality revolution

Given ha he younges CEOs in his cohor are in heir mid-70s, succession planning should be an urgen priori y or hese amily businesses, par icularly given he unchar ed and challenging erri ory ha lies ahead in he New eali y.

Te survey also revealed ha 70 percen o curren amily business leaders admi ha hey do no have a succession plan, even hough 45 percen say here is a high likelihood ha he amily business will s ay in he hands o he amily in he u ure.

Tis sen imen is par icularly s rong among Silen Genera ion and Baby Boomer CEOs. Te good news is ha he resul s o he survey show ha Millennials are ready o s ep up and ake over amily businesses. Many are already doing so wi h grea success around he world.

We see rapid changes in opera ing models and business innova ions emerging rom amily businesses ha ackled COVID-19 head-on.

The good news? Millennials are ready to deliver Far rom being lazy and en i led, as popular s ereo ypes some imes assume,

a 2016 workplace s udy conduc ed by he World Economic Forum sugges s ha Millennials are he mos likely group o be workaholics. Compared o older genera ions, hey’re also less likely o use all o heir vaca ion ime.

I shouldn’ be surprising hen, ha amily businesses led by Genera ion X or Millennial CEOs show higher levels o per ormance in he S EP Projec Global Consor ium survey han amily businesses led by he Silen Genera ion and Baby Boomers, wi h CEOs rom hose older cohor s experiencing a all-o in per ormance over ime.

Different styles, different outcomes I should also no be a surprise ha he S EP Projec Global Consor ium survey ound no able di erences in genera ional ou look be ween Silen Genera ion/Baby Boomer CEOs and heir Genera ion X/Millennial CEO successors.

While 60 percen o CEOs in Europe and Cen ral Asia and 40 percen in Nor h America plan o re ire a er age 70, mos Millennial amily business leaders

Silen Genera ion and Baby Boomer CEOs should eel reassured by he resul s o he survey when i comes o concerns regarding he nex genera ion’s readiness and abili y o lead he amily en erprise.

Millennial amily business leaders may have di eren priori ies and leadership s yles han earlier genera ions, bu hey are a highly educa ed cohor o po en ial CEOs who are eager o make heir mark. Indeed, a 2018 s udy shows ha 29 percen o Millennials are already in managemen or execu ive posi ions in amily businesses, wi h 23 percen holding posi ions on he board.

Millennials around he world are leading amily frms o new heigh s, wi h amily frms led by younger CEOs perorming beter han hose ha have no ye ransi ioned o new leadership. aking all o hese considera ions in o accoun , amily business CEOs should no delay planning. Tis is especially rue or Silen Genera ion and Baby Boomer CEOs, who mus consider he imporance o work-li e balance or younger genera ions and, in par icular, he desire o Millennials o re ire decades earlier han heir predecessors.

By puting a ormal, imely and pro essional succession process in place ha re ec s changing demographics and evolving leadership s yles, amily business CEOs can help ensure he u ure o heir amily business.

Te good news or amily business leaders looking o hand o heir business o he nex genera ion? Tey’re ready.

First published by Tom McGinness: Partner, Global Leader, KPMG Private Enterprise Family Business Centre of Excellence, KPMG International on kpmg.com on 1 September, 2020

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Family Business

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ATO Compliance: Nex 5,000 program for priva e groups Te A O’s Private Wealth Group recently provided KPMG with an update regarding its Next 5,000 program. What is the 'Next 5,000' review program? n BELINDA CHEESWWRIGHT HE Nex 5,000 is an expansion o he op 500 priva e groups ax per ormance program and is in ended o provide assurance o he communi y ha hese groups are paying he righ amoun o ax.

Te A O’s approach under he Nex 5,000 will broadly mirror he op 1,000 ax per ormance program approach ha was applied o public and mul i-na ional companies in he sense ha he Nex 5,000 program will involve s reamlined assurance reviews.

Tese reviews will be under aken over an es ima ed 5 mon h period, wi h ailoring o he program o he priva e weal h marke and he curren COVID-19 environmen .

Te Nex 5,000 program will commence over he coming mon hs, wi h he A O curren ly seeking eedback rom groups on he exac iming, wi h par icular regard o he impac o COVID-19 on he capaci y o Nex 5,000 axpayers o be involved in he program.

Te A O has indica ed ha Nex 5,000 axpayer groups will comprise an individual who oge her wi h heir associa es and connec ed en i ies con rol ne weal h o more han $50 million. axpayers ha have already been cap ured under he op 500 priva e group program will be excluded rom he Nex 5,000.

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The ATO’s 'justified trust' methodology In per orming heir review, he A O will seek o apply heir 'jus ifed rus ' me hodology o ob ain assurance ha he group has paid he righ amoun o ax based on he ollowing our pillars:

1. E ec ive ax governance Te approach o reviewing a group’s ax governance ramework will include a ailored approach ocusing on ax compliance processes, roles and responsibili ies and pos implemen a ion review.

Te A O acknowledged ha i does no necessarily expec o see he same level o ormal ax governance documena ion as hose axpayers under he op 1,000 or op 500 priva e group programs.

However, as par o hese reviews, he A O will be looking or documen a ion o demons ra e ha here is e ec ive oversigh o ax processes, iden ifca ion o ax risks, pro essional ax advice is sough where appropria e, and ax compliance is imely and accura e.

2. ax risks fagged Te A O will seek o unders and whe her any curren Prac ical Compliance Guidelines (PCGs) or axpayer Aler s may apply o he group and any risks iden ifed as a resul o his. As an example, his may include reliance on PCG’s in rela ion o Division 7A arrangemen s wi hin he group.

3. New and signi can ransac ions Te A O will seek o unders and he curren business ac ivi ies, par icularly signifcan or new ransac ions, and he ax ou comes o hese. Tis will also include an assessmen o ongoing ransac ions and specifc indus ry issues which may impac on a par icular axpayer group.

4. Accoun ing and ax di erences Te A O will seek o iden i y cer ain di erences be ween accoun ing and ax, which will include a review o ax reconcilia ions and rus dis ribu ions.

O her poin s o no e: • Te review period will generally cover he wo mos recen income years.

• GS will be in egra ed in o some s reamlined assurance reviews o unders and GS consequences on signifcan ransac ions, even s or issues and also iden i y any priori y GS issues.

• Tere will be limi ed reviews o SMSFs. A review o a SMSF will usually only occur where a SMSF orms a ma erial par o he group.

Next steps

Prac ical s eps o ensure your readiness or review may include: • Formally documen ing your ax risk managemen and governance ramework and/or ax processes wi h regard o he size and complexi y o your group.

• Proac ively assessing any ax risks agged o he marke and documen ing how hese risks have been managed where hey apply o your group.

• Ensuring ha all con emporaneous documen a ion and advice has been re ained and colla ed ha suppor s he ax rea men o your signifcan or new ransac ions.

• All ma erial book o ax adjus men s are easily explainable and suppor ed by applicable documen a ion ( or example di erences in deprecia ion deduc ions).

Where specifc ax risks are iden ifed, advice should be sough on how bes o manage his risk, including colla ing suppor ing documen a ion or po en ially engaging wi h he A O. I you would like o discuss he Nex 5,000 program and how KPMG can assis your group in preparing or his program, please eel ree o con ac us.

Groups who believe hey may all in o he Nex 5,000 program should consider how hey would address he our pillars ou lined above. In our experience, he bes ou comes are achieved when axpayers are adequa ely prepared or heir reviews.

First published by Belinda Cheesewright, Partner, Tax Transactions and Accounting, Enterprise, KPMG Australia on KPMG.com.au on 13 August 2020

Timeframe of a review Te A O has advised ha all groups subjec o he Nex 5,000 program will be provided wi h hree mon hs advanced no ice be ore commencemen o he review, wi h he frs round o reques or in orma ion generally required wi hin 28 days a er commencemen .

However, he A O is providing a COVID-19 ransi ion op ion where groups can elec o waive he hree mon h advanced no ice in exchange or being provided wi h an ex ended period o respond o he frs round o reques or in orma ion. Tis COVID-19 ransi ion op ion is a welcome announcemen and will provide groups wi h up o wo and a hal mon hs o respond o he frs reques or in orma ion.

Dr Brendan Rynne, KPMG Chief Economist, Comments on the ABS June quarter national accounts HE la es GDP resul s shows he na ional economy screeched o a hal in he June quar er o 2020, declining 7 percen rom he previous quar er, o be down 0.2 percen year on year.

During his quar er many Aus ralians saw heir jobs evapora e or heir hours worked all, resul ing in lower income and increased uncer ain y. You can see his de ailed in he na ional accoun s: hours worked ell by abou 10 percen , wages income or employees ell 2.5 percen , and real ne disposable income per capi a ell 8 percen .

Impor an ly, his income hi and uncer ain y also drove household consump ion down by over 12 percen during he quar er, led by a 17.6 percen all in services spending; his corre-

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Dr Brendan Rynne.

spondingly saw he household savings ra io increase sharply o abou 20 percen , a number no seen since he early 1970s.

O her double digi alls over he quar er were recorded in impor s (-12.9 percen ) and inves men (-10.0 percen ), while expor s ell by 6.9 percen .

Te ac ha impor s ell signifcan ly more han expor s means ha he rade balance made a posi ive con ribu ion o GDP grow h. Al hough expor s ell in aggrega e, expor s o iron ore held up, growing by 5 percen – wi hou his, he headline GDP fgure would have been worse.

Te na ional accoun s also showed he s rong in uence o JobKeeper on he economy during his period. Te governmen ’s COVID-19 wage subsidy program, combined wi h i s business suppor package (Boos ing Cash Flow or Employers), has seen gross surplus o corpora ions and paymen s o business owners increase by 11 percen and 22 percen respec ively over he quar er.

However, consis en wi h he ‘ here is no such hing as a ree lunch’ philosophy (or more mundanely re erred o as ‘double-en ry accoun ing’), governmen axes and subsidies ell by $56bn over he same ime period, re ec ing he $70bn in governmen suppor paymen s made during his ime.

Overall, while hese resul s are worse han we had an icipa ed, here are a ew encouraging signs hidden amongs he gloom ha sugges o us he basis o he recovery is s ill posi ive. Tose who were employed during he June quar er were working exremely hard (gross value added per hour worked marke sec or was up 5.9 percen q-q), and he ou pu hey genera ed was highly valued (GDP per hour worked was up 3.1 percen q-q).

So we can say he core o he value-adding componen o he Aus ralian economy remains in ac , bu he nice ies o our socie y – leisure, ar s, spor s, shopping – have aken a batering. Bu hey will come back, jus a litle slower han we had hoped or.

Had he core o he economy cracked more – al hough i is s ill cracking, given he Vic orian lockdown – hen he social nice ies would ake even longer o recover because people’s concerns would have ocused on having and keeping a job, puting ood on he able and having a roo over heir amily’s head ra her han any hing else.

First published by Dr Brendan Rynne, Partner and Chief Economist, KPMG Australia on KPMG Newsroom on 3 September 2020.

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