Give More to your Kids …. And Less to the Taxman
BY Hitesh Mohanlal
If you want to work less, earn more and build wealth the chances are you are going to need more than an accountant who does year-end tax returns and financials.
I am going to go out on a limb here. And no doubt the accounting industry and accountants in general are going to go loopy and mad at me and I am sure death treats will be coming my way because that is the way the world works now.
That’s because I think most business owners are getting shafted by accountants and so called ‘business advisors.’ Ok to those who want me to word it nicely I will say there is a lot of disservice provided to business owners by accountants.
Half the problem is, as always, Government. Yes, I admit this is a bit of a copout, but it’s true. They have made tax rules and regulations so complex that we accountants do nothing else except tax compliance. Most accountants are super busy and there is one on almost every street corner so you would expect that all these super productive hours are being spent on advising businesses on how to make more money, work less and build wealth.
Err….. no There is so much time needed and money made from dealing with tax matters why deal with stuff that really matters? Besides accountants must sell advisory (because business owners are not forced to buy it) which is hard whereas tax compliance is an easy sell. Every business owner knows they must do BAS and tax returns otherwise the ATO will knock their door down and put their head on a spike.
What we really need in Australia is less tax regulation. This then means accountants fee incomes go down which means they panic because expensive school fees cannot get paid. Fancy handbags and those Christian Louboutin shoes become a bit hard to justify too.
And that means they must spend more time on the things that matter to most business owners.
In the last few weeks, I have had several instances where tax work, compliance or tax advise has been provided to the detriment to what the client wants. And to me that is a problem.
In fact, a couple of months back I was presenting at a medical conference and one of the things that came up was lack of education provided by accountants and advisors.
So, what should we accountants be talking to you about?
Well, for starters, I am finding I am having more discussions about children, succession planning and how to transfer businesses or assets to the next generation.
Indians and those from the subcontinent are generally quite good with money. And because we have been careful with our money we, other Baby Boomers and Gen X will pass on a record $3.5 trillion to our children in the next 20 years in what has become known as the “great wealth transfer”.
So, if you are worried about how your kids are going to survive because they cannot afford a house stop worrying – they will be able to buy a home – it’s just going to be later than they think and it will be done with money they did not earn or generate.
The problem? Well, if they do it the wrong way then the ATO is going to want a chunk. Then you have the issue of what happens when your kids actually get hold of your money. Will they use it in way you would approve?
From discussion I have had clients and their children, I am not convinced they will use it the way we would like. Baby Boomers and Gen X came from a generation of hard work and stiff upper life. Mental health did not exist. Life balance did not exist. Starvation was a given. We knew the world was unfair and accepted it. The generation below see life a different way and that means money (especially yours) and how it is spent will be different.
Now many of you know I am lover of cars. But I brought those through my hard work. I am pretty convinced that when my youngest inherits my money the first thing he will do is buy a Ferrari, Aston Martin and Lamborghini and he will probably do it before my body has gone cold. See what I mean?
So how do you transfer assets, businesses and inheritance to the next generation without either the ATO getting a hold of it or your kids blowing it?
The first thing you will need a good estate plan. Yes, that means we must talk about death. Trust me. You will not die early just because you talk about it so have the chat with your accountant or legal advisor. You want to set up your estate plan with trusts so your kids can’t blow it and others such as ex-spouses can’t access it either.
But what if you want to transfer assets whilst you are alive? That is a bit more complex because it depends on what the existing ownership is and each case is different.
What I will tell you is that you need to have the chat with your advisors. And if all they want to talk about is your tax returns, then they are doing you a disservice and the long term will mean more taxes and pain. And that means you must move to someone else. Or be happy knowing your hard-earned money will be wasted on taxes and blown on a Ferrari, Aston Martin or Lamborghini.
