Australia: Family business succession: When to pass control? Watch out for tax and duty traps.

Last Updated: 23 April 2017
Article by Kylie Wilson

Most Read Contributor in Australia, September 2018

A common question for family business succession, and particularly for primary production family business, is when control of the business should be passed to the next generation, without risking the valuable assets of the business if something goes wrong.

There are multiple options that:

  1. enable security for the next generation to be able to continue to conduct a family business to support their own family;
  2. provide off-farm/non-business siblings with an inheritance in due course that can be considered to be fair, even if it is not equal; and
  3. protect large assets in the event, at least for a period of time, that the next generation runs into any form of financial difficulty, whether that be from creditors, death, total and permanent disability or divorce.

Unfortunately, it is far too common to see the first generation wishing to retain control of large assets due to a perceived risk of what may happen to those assets if passed to the next generation.

With appropriate advice and planning, this risk can be minimised, and ultimately the first generation needs to be aware of the potential risk to the family and the business as a consequence of not appropriately transitioning an intergenerational business during lifetime.

Conversely, it is very important to ensure that the next generation is in fact invested in the business, fully trained on all aspects of the business (particularly the financial aspects of the business) before a full transition of the business occurs.

With appropriate structuring and advice, the next generation can have a level of involvement in the business that involves a transition of management first before any transition of valuable assets occur.

It is however important in these circumstances to ensure that in the process of any transition of management control, parents are still involved in the conduct of the business to some extent, both for the purposes of CGT and duty in some States.

Frequently we see situations where the business itself has been fully transitioned to the next generation, with the parents retaining only ownership of the land without any other involvement in the business conducted on the land, and this can become extremely costly when it is necessary to transfer the land in due course. An example of this is below:

Case Study

Margaret inherited a cattle station on the death of her husband. She did not want to remain involved in the business after the death of her husband, but wanted to retain some security for having access to capital assets in the event that she had any health issues later in life.
Her accountant advised her to transition some of the land to her son and daughter in law, who were fully conducting the business on the land in their own discretionary trust entity. Three quarters of the land was transferred to the son and daughter in law, with one quarter retained by Margaret.
For the next 20 years, the next generation conducted business on the land in their discretionary trust. Margaret was not involved in the business and did not receive any distributions from the relevant trust entity. She had an alternative source of income. Over that period of time, the value of the land rose from an original cost base of $4 million to a market value of $15 million.
One of Margaret's other children, who was suffering severe financial difficulties, made reference at a family Christmas that he expected to receive a share of the property on Margaret's death.
Margaret therefore sought advice in respect of transferring her quarter share of the property completely to her son and his wife. Unfortunately, as the relevant CGT asset was not used by her or by an entity connected with her in a business for at least 7.5 years, the land did not satisfy the active asset test in respect of Margaret to enable her to access the small business CGT concessions. Other than the general CGT discount, the gain would otherwise be fully taxable at Margaret's marginal rate.

In this situation, for the purposes of duty in Queensland, the transfer of control of the business well before the transfer of land is also problematic as it is arguable the business is no longer carried on by Margaret, whether alone or with others, as required under the terms of Part 10 of the Duties Act 2001.

There is no easy answer in respect of maintaining control as to some extent the timing of passing control will depend upon the many factors including the business acumen of the next generation.

Having said that, if parents are no longer involved in the business and the capital required to fully fund the parents in retirement is able to be secured for parents, then passing full control of the business needs to be properly considered, along with passing of the assets that are needed to conduct the business, so that the next generation is secure with a viable business moving forward for themselves and their family.

Ultimately the capital required in retirement should be of a sufficient amount that it generates the income needed in retirement, without debt, and without the capital being reduced for the remainder of the parents' lives, so that off-farm siblings are able to take an inheritance in due course.

If this is not able to be achieved, a carefully structured agreement between family members may need to be considered to limit the exposure of the business to any potential family dispute in respect of business assets.

This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions