Commonwealth of Australia 2013 ISBN 978-1-74229-800-9 Printed by the Senate Printing Unit, Parliament House, Canberra ii Members of the Committee Ms Deborah O'Neill, Chair NSW ALP Senator Sue Boyce, Deputy Chair QLD LP Senator Mathias Cormann WA LP Senator Rachel Siewert (until 28 February 2013) WA AG Senator Matt Thistlethwaite NSW ALP Senator Anne Urquhart TAS ALP Mr Paul Fletcher MP NSW LP The Hon Alan Griffin MP VIC ALP The Hon Tony Smith MP VIC LP Ms Laura Smyth MP VIC ALP SECRETARIAT Dr Richard Grant, Acting Secretary Ms Erin East, Principal Research Officer Dr Patrick Hodder, Acting Senior Research Officer Mr Tim Hillman, Administrative Officer PO Box 6100 Parliament House Canberra ACT 2600 T: +61 2 6277 3583 F: +61 2 6277 5719 E: [email protected] W: www.aph.gov.au/joint corporations iii Duties of the Committee Section 243 of the Australian Securities and Investments Commission Act 2001 sets out the Parliamentary Committee's duties as follows: (a) to inquire into, and report to both Houses on: (i) activities of ASIC or the Panel, or matters connected with such activities, to which, in the Parliamentary Committee's opinion, the Parliament's attention should be directed; or (ii) the operation of the corporations legislation (other than the excluded provisions), or of any other law of the Commonwealth, of a State or Territory or of a foreign country that appears to the Parliamentary Committee to affect significantly the operation of the corporations legislation (other than the excluded provisions); and (b) to examine each annual report that is prepared by a body established by this Act and of which a copy has been laid before a House, and to report to both Houses on matters that appear in, or arise out of, that annual report and to which, in the Parliamentary Committee's opinion, the Parliament's attention should be directed; and (c) to inquire into any question in connection with its duties that is referred to it by a House, and to report to that House on that question. v vi Table of Contents Members of the Committee .............................................................................. iii Duties of the Committee ..................................................................................... v Abbreviations ..................................................................................................... xi Executive summary ......................................................................................... xiii A lack of a definition and official data ................................................................xiii The contribution and mindset of family businesses ............................................ xiv The challenges unique to family businesses ........................................................ xiv Family businesses and the Global Financial Crisis ...........................................xviii Beginning the conversation within government ................................................xviii List of recommendations ................................................................................. xxi Chapter 1: Introduction ...................................................................................... 1 The referral ............................................................................................................. 2 Submissions to the inquiry ..................................................................................... 2 Public hearings ....................................................................................................... 4 Acknowledgements ................................................................................................ 4 A brief historical context ........................................................................................ 5 Successful Australian family businesses ................................................................ 9 Family businesses and migrants ........................................................................... 11 The Australian family farm .................................................................................. 12 Structure of the report ........................................................................................... 13 Chapter 2: The challenge of defining 'family business' and the needs of policy makers ..................................................................................................... 15 Introduction .......................................................................................................... 15 The 2004–05 Business Characteristics Survey .................................................... 16 Stakeholders' views on the need for a definition .................................................. 17 vii Are family businesses mainly small and medium-sized enterprises? .................. 23 Table 2.1: Businesses by size (employees) .......................................................... 23 Table 2.2: Businesses by size (turnover) .............................................................. 24 Possible definitions of a family business ............................................................. 27 Are sole traders family businesses? ...................................................................... 33 The possibility or the intention to pass on the business ....................................... 35 Should a definition include small and large family businesses? .......................... 39 Public policy reasons for a definition of family business .................................... 40 The committee's conclusions on an Australian definition of family business ..... 42 Final comment ...................................................................................................... 50 Chapter 3: The availability and reliability of information and statistics on family business ................................................................................................... 51 Introduction .......................................................................................................... 51 A patchwork of surveys ........................................................................................ 52 Submitters' and witnesses' views on the availability and reliability of data ........ 65 Committee view .................................................................................................... 73 Chapter 4: The characteristics and mindset of family businesses in Australia ............................................................................................................. 75 Introduction .......................................................................................................... 75 Key family business characteristics...................................................................... 76 A long-term mindset—causes and benefits .......................................................... 77 An aversion to risk ................................................................................................ 81 Flexible decision-making ..................................................................................... 83 Retaining staff ...................................................................................................... 85 Community-based and community-oriented ........................................................ 88 Labour productivity, governance and performance ............................................. 91 Final comment ...................................................................................................... 95 viii Chapter 5: The challenge of succession .......................................................... 97 Introduction .......................................................................................................... 97 Strategies to assist intergenerational business transfers ....................................... 99 Barriers to managing succession ........................................................................ 100 Growing expertise in succession management across the family business sector ............................................................................................................................ 111 Is succession necessary? ..................................................................................... 115 Committee view .................................................................................................. 119 Chapter 6: The role of family trusts .............................................................. 121 Trading trusts — overview ................................................................................. 121 Figure 6.1: The trust structure ............................................................................ 123 Family trusts in Australia ................................................................................... 125 Figure 6.2: Family trusts and the family group .................................................. 130 Legislative issues ................................................................................................ 130 Issues relating to Division 7A of the Income Tax Assessment Act 1936 .......... 131 Issues arising out of Division 6 of the Income Tax Assessment Act 1936 ........ 137 Family trusts and capital gains tax ..................................................................... 140 Family law property settlements ........................................................................ 147 The rule against perpetuities