Financial advice practices will benefit from the Budget’s recently-introduced small business package – but the impact of the incentives is yet to be determined
As Treasurer Joe Hockey gets set to implement its Budget measures, some in the industry believe that up to 90 per cent of financial advice practices could benefit from the tax incentives.
Forte Asset Solutions’ managing director, Steve Prendeville – who has provided professional valuations for hundreds of financial advice firms – told ifa that most Australian practices are likely to meet the eligibility criteria,
The 2015 Budget comprised measures that include a tax cut of 1.5 per cent for businesses with a turnover of less than $2 million – down from the current 30 per cent to 28.5 per cent.
The small business package also included an immediate 100 per cent tax write-off for assets costing less than $20,000.
Mr Prendeville estimates that 90 to 95 per cent of advice practices will have an annual turnover of less than $2 million.
Ryan Watson, chief executive of Melbourne-based financial advice firm Tribeca Financial, is one adviser who said the incentives will have a positive influence on his business.
“We are planning to update our computers [and software] to allow for greater client interactivity, and to have that $20,000 immediate tax deduction for capital items, I think that will make a difference,” he says, with the end of the financial year fast approaching.
Mr Watson says the immediate write-off allows him to bring his purchase forward by at least three to six months.
“It will allow us to invest a little bit in ourselves – we are all about client experience so it will definitely help with that,” he says.
Investing in capital items that enhance client engagement has significant knock-on effects, according to Mr Watson, who notes that if clients are more engaged with their adviser, they are more likely to suggest the firm to family and friends.
While customer service is a Tribeca priority, the firm is nonetheless intended to be a commercially profitable business, he says.
“Anything that helps our bottom line [including the 1.5 per cent tax cut] means that we will definitely invest back into the business,” he says.
From pessimism to optimism
According to the Association of Financial Advisers’ chief executive, Brad Fox, “the Budget represents a realistic attempt to unfreeze the wheels of small business across the economy”.
“The small business asset deduction initiative is a clear message to small business to invest in assets that increase productivity and profitability.”
The AFA believes the deduction initiative will help financial advice practices to spend on assets that help navigate current disruptive changes – like industry reform.
“Acquiring assets that support practice administration, the professional provision of advice, client communication and service initiatives will be more attractive under the measure,” Mr Fox explains.
There is also consensus among ifa readers that the government’s package will be beneficial – 70.9 per cent of ifa readers canvassed in a recent straw poll believe the Budget will have a positive impact on their business.
The Institute of Public Accountants has welcomed the tax cut: “This is the first small business tax cut in 13 years, so it is long overdue,” says IPA’s chief executive Andrew Conway.
Peter Bembrick, tax partner at HLB Mann Judd, also paints a positive picture.
“The real benefit from this concession is to allow the business to claim an up-front tax deduction instead of spreading the tax saving over, say, five years.
It is an extremely generous concession and one that should achieve its aim of generating a significant amount of business capital expenditure over the next two and a bit years,” says Mr Bembrick.
On the fence
However, while the cuts and incentives appear favourable, Coffs Harbour-based financial adviser Dacian Moses isn’t convinced it’s a good policy.
“I’m not attracted to the idea of an arbitrary $2 million cut off between those businesses that are taxed more and those that are taxed less,” he says. “What if you are a small business that grows from $1.5 million in revenue to $2 million? All of a sudden they get punished for being successful.”
Mr Moses sees the package as a reform that misses the mark, arguing that the 1.5 per cent tax cut will not make a significant difference to the productivity of a small business.
He does, however, see benefit in the $20,000 immediate write-off: “I actually think that might encourage small businesses to buy some stuff,” he says.
H&R Block has warned small business owners about “potential traps” in the deduction initiative.
The firm’s tax communications director, Mark Chapman, says these owners should not let the “generosity of the tax break override your commercial instincts”.
“This tax break is ideal for those businesses which were planning to purchase assets anyway or have a real business need to invest,” he says.
Meanwhile, HLB Mann Judd’s Peter Bembrick says “the key message for small businesses is only buy something that is needed for the business and that you may have been considering buying anyway at some point”.
While Labor leader Bill Shorten largely supports the Coalition’s package, Mr Shorten also seeks to cut the small business tax rate by five per cent.
In his Budget reply speech, Mr Shorten said more needs to be done to “grease the wheels of small business”.
“A 1.5 per cent cut for small businesses might be enough to generate a headline – but it is not enough to generate the confidence and long-term growth our economy needs,” Mr Shorten said.
“I invite you to work with me on a fair and fiscally responsible plan to reduce the tax rate for Australian small business from 30 to 25 per cent.”
In opposition to Mr Shorten, small business minister Bruce Billson claimed the opposition leader’s proposals are “just another thought bubble”.
“There was no explanation of how Labor’s ideas would work, apply or be funded,” he said.
Tribeca’s Mr Watson says while a five per cent tax cut would be warmly welcomed, he is unsure about its practicality and feasibility. Also, the extent to which the package will have an impact on the broader economy remains to be seen.
“It all comes back to the way Tony Abbott and Joe Hockey are selling the Budget, and I think they’re doing a better job than they did last time,” Mr Watson says.
So, even though opinion differs on whether the Budget incentives will energise Australian small businesses, there is at least the opportunity for financial advice firms to invest in their businesses and to enhance their services.
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