Spotlight shifts to advisers' practices

To shed some light on the myriad of tax changes about to significantly alter the way advisers do business, the Strategist Group is conducting a number of seminars which will travel around the country. Jason Spits caught up with director of the Strategist Group, Grant Abbott to get to the bottom of the changes.

To shed some light on the myriad of tax changes about to significantly alter the way advisers do business, the Strategist Group is conducting a number of seminars which will travel around the country. Jason Spits caught up with director of the Strategist Group, Grant Abbott to get to the bottom of the changes.

The waves of taxation changes washing over the financial services industry are causing increasing concern for financial planners as they try to come to terms with the complexity of the new situation.

The new landscape will see a quantum shift in emphasis from traditional invest-ment vehicles, such as family trusts to individually owned investment vehicles.

At the same time, changes to the taxation of trusts; changes to the capital gains tax (CGT) system and the introduction of the GST will combine to create a potential quagmire for advisers.

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The long-term implications of these changes could also affect a planner’s practice, according to Strategist Group co-director Grant Abbott.

Abbott says that while the issue of taxation change is high in many advisers’ minds, the implications for their own businesses has not received enough attention.

"From a GST point of view, many accounting procedures are not up to scratch and need to be brought up to speed," Abbott says.

"In a small practice, this can be difficult to maintain but it should be remembered that every piece of advice and every single step in a service is to be considered un-der the GST."

Abbott says this need to examine how the new tax will come into play extends further up the line and planners need to be asking questions of fund managers as to how fees and commissions will be affected.

"Planner should examine whether fees will need to increase to cover the cost of the tax. They must also find out whether fund managers will compensate for the GST on commissions," Abbott says.

"Fund managers will need to cast a critical eye over this issue and make changes to their system of accounting as will dealer groups as they apply a further level of GST to their fees."

The best way to examine the extent of the impact of the GST in a practice, Abbott says, is for planners to identify, piece by piece, the elements of the business that are affected.

"Over the next six months there will be a large degree of soul searching over these business practices as well as the shift to a new CGT system and the changing treatment of trusts," he says.

The new treatment of trusts is two-pronged. The most obvious aspect is that trusts will be taxed as companies, at 30 per cent, from the 1 July this year. The second aspect is that CGT will no longer pass through the trust. This means that any in-come derived from the trust is treated as full taxable income.

This has already started to put pressure on unit trust holders. Some are considering the change to individually held investment vehicles which allow the CGT exemp-tions to come into play once again.

"There is a drive, inherent in all these changes, by the government to move people into individually held vehicles to clear up some grey areas. The investor structure and where that is housed is now the focus."

However, Abbott says the problem with this approach for a planner’s practice is that many trusts were originally created to deal with issues of succession planning and the departure of partners from the practice as well as liability protection.

"Most advisers have formed partnerships or created trust structures for liability rea-sons. Those who wish to step out of these structures for CGT purposes may find problems dealing with bankruptcy, succession or divorce," he says.

The only easy way to avoid any problems, he says, is to get out of the financial planning business and take the CGT exemption currently available.

"Most planners won't of course and some may even have to forget about clients in the short term and get their house in order," Abbott says.

"Unfortunately I haven't discovered it so far but if I could find the key to solving this situation easily I stand to make a lot of money."

Money Management, in conjunction with Macquarie Bank and The Strategist Group, is bringing the Tax Reform Workshop to your local capital city in February 2000. The full day workshop features the amazing, all juggling and performing Grant Abbott and will cover client case studies to determine which of your clients should restructure and how to make the most of the new tax reform measures. For an invitation contact The Strategist Group on 02 9955 2955.