Financial planners will need to revisit their business plans, following the re-lease of the government’s response to the Ralph report recommendations.
Financial planners will need to revisit their business plans, following the re-lease of the government’s response to the Ralph report recommendations.
“Planners will have to examine everything from tax structures through to succes-sion planning as many of the changes for business entities actually involve them also,” says AM Corporation’s technical services manager Phil La Greca.
La Greca says the change in capital gains tax (CGT) provisions will give a boost to the returns gained by planners looking to sell their businesses.
Changes to the taxation system will also create a demand for financial planning services, according to BT Funds Management senior vice president Brian Bissaker.
“The implications for planners are fantastic. Changes are what people need ad-vice on,” Bissaker says.
Financial Planning Association chief executive Michael McKenna says after legis-lation containing these proposals is passed planners will see an increased work-load.
“Planners will have to sit with most clients and examine the investment struc-tures and what can be down to fix them, with particular emphasis on the new tax status of family trusts.”
“These changes, along with the GST, are the fundamental change needed in the tax system and the result for planners will be a greater push into growth assets and investments;” McKenna says.
Credit Suisse head of retail funds, Brian Thomas, says the most fundamental changes in the report relate to taxes on investment not business.
“Anyone with insurance bonds, trusts, shares, any tax structure with spare money has a lot of work to do on strategy, and that’s without looking at the GST,” he says.
The final impact of the Ralph reforms will emerge over coming weeks as analysts pore over the 800 word report, but Thomas says the reforms are an improvement on the current system.
“It could have been better if the reforms had really bitten the bullet, but they then would not have got through Parliament,” Thomas says.
La Greca says there is also time for life companies who still have time to lobby for changes, even though the timeframe between now and July 1 next year is shrinking rapidly.
“People have to bear in mind these are still only announcements from the review and are far from being legislation yet,” La Greca says.
The Changes in a Nutshell.
Corporate tax rate – will drop to 30 per cent, bringing it into line with mar-ginal tax rates for middle income earners.
Life companies – will eventually be taxed at 30 per cent, in line with other companies.
Capital gains tax (CGT) – indexation removed and CGT applied to only 50 per cent of the difference between purchase and selling prices on capital assets and will apply for asset held for more than 12 months. Assets sold within 12 months will be taxed on the full profit amount.
Super funds need only declare two thirds of capital gains in income, resulting in an effective tax drop from 15 to 10 per cent on super fund earnings.
Family trusts – will be taxed as corporate entities and pay dividends, instead of distributions, and be taxed under marginal income rates.
Collective Investment Vehicles – managed funds will maintain flow through taxa-tion treatment and income flowing through will keep its character. As a result, any capital gains distributed to fund members will fall under the new CGT rates.
