Largely due to the level of intergenerational wealth transfer, there has in recent years been an increasing emphasis on all forms of succession planning and, in particular, business succession planning.
In broad terms, a buy-sell agreement is a contractual arrangement between the ultimate owners (or “principals”) of a business. The agreement is structured so that if certain events occur, such as the death or incapacity of a principal, the continuing principals are given the option to purchase the interest of the departing principal.
Most commonly, insurance is obtained to help fund buy-sell arrangements.
Since the withdrawal of the ATO’s draft Buy Sell Discussion Paper in 2010 there has been some uncertainty about many aspects of insurance funded buy-sell arrangements, particularly those that utilise insurance trusts.
Writing in Thomson Reuters Weekly Tax Bulletin Matthew Burgess and Patrick Ellwood, Directors at View Legal say recent changes introduced as part of the Tax and Superannuation Laws Amendment (2014 Measures No 7) Bill 2014 (now awaiting Royal Assent after having been passed by Parliament without amendment) appear to have clarified the position. They go on to explain.
Read their full article in Issue 9 for 2015 of the Weekly Tax Bulletin.