Family businesses are focused on purpose

Purpose. It’s the one of the Four Pillars of Governance Best Practice and, increasingly, a focus for New Zealand’s family-owned businesses.

And having determined the purpose of their businesses, families are taking steps to put in place governance structures that can deliver on it, says Natalie Berkett, Director KPMG New Zealand.

Families are asking, ‘do we need to change our operating structure or our governance structure to enable us to achieve the goals we have, as a family, for our family wealth?’, Berkett says.

“Before they can decide on that, a lot of families are asking, ‘what is our long-term goal and what do we want to achieve?’”

Reconsidering purpose and governance arrangements are two of the three global trends identified in KPMG’s Global Family Business Tax Monitor 2023 – “branching out, building up and giving back”.

For many family businesses, purpose falls into the “giving back” category, she says.

“Sometimes the question is not just ‘what is the purpose of the business?’. It can be ‘what do we want to do with the wealth we have generated?’

“What we are seeing now is a targeted, structured approach to that; formalising what they want to achieve with philanthropic giving or adopting wider environmental perspectives.”

That drives decisions on how family wealth is managed and may lead to changes in governance arrangements – the “building up” category – that are key to sustainable success over generations, she says.

New Zealand family businesses are also increasingly looking overseas for new markets and opportunities – part of the global “branching out” trend.

“We are big exporters and there has been some growth in that area, post-Covid,” Berkett says.

“With that growth – going into new jurisdictions – you get increased complexity.”

One of the future issues for Kiwi family businesses identified in the report is potential changes to the tax system. There is interest, in an election year, in what the main political parties might do in the tax arena Berkett says that Inland Revenue has recently undertaken a statistical research project that calculated an effective tax rate on economic wealth for high-wealth New Zealanders encompassing not only income, but also realised and unrealised capital gains.

“This will give the government extensive data to understand the overall taxes being paid by these families and inform future tax policy. There has been a lot of speculation about what might come out of that but there is still a lot of water to go under the bridge on that one. There is also an ongoing Inland Revenue focus on accumulation and retention of income in structures which has resulted in the 39% trustee tax rate announced in the May 2023 tax bill.  We also saw dividend integrity proposals in 2022 that looked at, among other things, the avoidance of the 39% personal tax rate through share disposals, including in family succession planning scenarios.  While the proposals were ultimately shelved following feedback that they were too wide, the underlying issues around use of lower rate structures remains.”