Accounting firms must prioritise succession planning to mitigate tax risks: NAB

Bain said that owners or partners in an accounting firm can sometimes be more focused on just the immediate needs of their business, such as the growth strategy and talent retention.

"However, events that were not anticipated can happen quickly, which brings the need for succession planning forward at a much faster rate," she said.

"Health events among business partners, for example, can trigger an acceleration of succession."

Where the business fails to adequately plan for succession, this can have significant financial, tax, and governance implications.

Over the past year, the ATO has urged owners of private groups to undertake succession planning to better manage any tax issues arising from either the transfer of control and wealth or the sale of a business.

Last year, the Tax Office warned that many private groups were incorrectly recognising the tax consequences of transactions or arrangements for succession.

The ATO said it was focusing on entities that fail to recognise a CGT event when there has been a restructure or transfer of an asset, entities that incorrectly apply tax concessions or rollovers, and entities that adopt complex structures or enter into arrangements to access tax concessions or rollovers that are not otherwise available.

The Tax Office cautioned that private groups who failed to have a succession plan in place, did not have documentation to support transactions and arrangements and failed to lodge returns on time were at much higher risk of unintended tax consequences.

Bain said that establishing a succession plan starts by asking what scenarios a business is preparing for and what outcomes it is trying to achieve, and then determining what steps need to be put in place now.

"In some cases there may be organisational structure changes that need to be made to enable a seamless succession," she said.

Bain said that succession planning should be top of mind for business owners, given that around 60 per cent of businesses expect a partner to retire in the next five years.

A generational shift in the ownership of accounting firms, she said, also presents opportunities for younger accounting firm owners who may be looking to acquire new businesses and expand their firm.

"Succession can be both a challenge and an opportunity. We work with customers who are considering how they exit a business and transition wealth and maintain the value of a business that they've grown but at the same time we're also working with customers who are growing by acquisition and who are equally keen to identify opportunities to acquire and incorporate businesses."