The financial services industry is battling CLERP6 legislation which could cost dealers, brokers and advisers hundreds of thousands of dollars each in CGT and stamp duty.
The financial services industry is battling CLERP6 legislation which could cost dealers, brokers and advisers hundreds of thousands of dollars each in CGT and stamp duty.
The single licensing requirement contained in draft provisions of the Financial Services Reform Bill (FSRB) will trigger a Capital Gains Tax (CGT) event and in some cases invoke stamp duty for all financial services licence holders. Agents and property authority holders will also be slugged with the CGT because they hold underlying contracts with licensees.
“This is a major issue – it could hold back all of CLERP6 because nobody is going to restructure until they know they’ll get CGT relief.” says MLC’s national technical manager, adviser solutions, Chris Drummer.
Industry bodies, including IFSA, the FPA, the National Insurance Brokers Association (NIBA) and the Association of Financial Advisers (AFA) have joined forces to persuade the government to grant relief from the taxes.
IFSA deputy chief executive officer Richard Gilbert says that while the government has indicated a willingness to consider comment on the consequences of the new regime, there is no guarantee that the industry will win wholesale tax relief.
“It is difficult winning a case for wholesale relief because there is inherent conservatism in government — and that’s because public revenue is at risk.”
The introduction of a single licence involves the cancellation of the multitude of licences currently in force. As current licences are subject to the CGT provisions of the Income Tax Assessment Act (ITAA), their cancellation will trigger a CGT event. If the legislation goes ahead unchanged, CGT payable would be based on the market value of the replacement licences, which in some cases are worth millions.
“Some of these licences are very valuable. They probably weren’t 15 years ago when the businesses started, but they could now be worth millions. The Bill will require every financial services entity to change it’s hat — that means terminating what you are now and that triggers CGT,” Drummer says.
Although the FSRB includes a two-year transition period for agents and proper authority holders, the industry is arguing that current adviser contracts will not be workable under the new regime and will need to be cancelled and replaced with new agreements – an event that will also trigger CGT.
Despite the difficulties, Gilbert is reasonably confident of a swift resolution.
“We have made a submission to government which we believe they are treating with priority. We believe we will receive an appropriate response in the form of CGT and stamp duty relief,” he says.
