New Budget Changes & Succession Planning for Your Financial Planning Business

Jul 15
6 min read

Updated: Jul 22

What the New Budget Means for Your Financial Planning Business

By Fiona Ettles, Partner at FinConnect

The Federal Budget does not usually stay front of mind once July arrives. This year is different, with several proposed changes continuing to attract attention because of their potential impact on the financial position of individuals, families and business owners.

Much of the discussion has focused on what the changes to family trusts, capital gains tax and the small business CGT concessions could mean for clients. But financial planners also need to consider how these proposals may affect their own businesses, including how they are structured, valued and eventually sold.

You have probably spent plenty of time working through these issues with clients. It is equally important to consider what they could mean for how you hold equity, bring in future shareholders, and fund your eventual exit.

It is the financial planning industry’s version of the plumber with the leaking tap. We regularly meet advisers who have spent years planning for their clients but have not developed a clear plan for themselves.

It may be an adviser in their seventies who assumed they would continue working indefinitely. Or a 65-year-old business owner who has set a sale price based on the amount they need to retire, rather than what the business is worth in the market.

Whether this comes down to time, access to support or uncertainty about the options available, it remains a significant gap across the industry. With adviser numbers continuing to fall, getting succession right is important for individual business owners and the future of the profession.

Operating through a family trust

Many single-owner financial planning businesses operate through a family trust or have a family trust as the shareholder of their company.

The proposed minimum 30% tax on trust distributions, currently expected to apply from 1 July 2028, could significantly change the way these structures are used.

Here are some of the areas worth considering now.

Franking credit refunds: Refunds of excess franking credits may no longer be available to family trust beneficiaries from 1 July 2028.

Bucket companies: There is still uncertainty around how distributions to bucket companies will be treated.

Based on the information released so far, there may be additional tax to pay. When combined with the requirement to retain funds within the company, bucket companies may become less useful for some business owners.

Restructure relief: The Government has discussed providing a three-year period in which businesses operating through family trusts may be able to restructure using rollover concessions.

This is expected to begin from 1 July 2028, although the details have not yet been finalised.

Future succession: A family trust can also make it more difficult to introduce new owners.

For example, you may eventually want to sell a 5% or 10% interest to a high-performing adviser. That is much harder when the business is operated directly through a family trust and may require a restructure first.

Even without the proposed tax changes, this is a good reason to review whether your current structure supports your long-term succession plan.

Capital Gains Tax

Buying, holding or selling equity: The proposed capital gains tax changes could affect advisers at every stage of business ownership, whether you are buying into a practice, gradually selling down your interest or planning to remain a shareholder for many years.

Selling equity over time: Are you part of an internal succession plan that involves selling portions of your equity over several years?

It is important to understand how each transaction may be taxed and how reducing your ownership percentage could affect your eligibility for the small business CGT concessions.

Once your ownership falls below certain levels, including the 20% significant individual threshold, your access to these concessions may be reduced.

The timing and structure of each transaction therefore matters.

Establishing your cost base: Knowing the market value of your shares at 30 June 2027 may become critical.

Under the proposed changes, growth up to that date may continue to qualify for the 50% CGT discount. Growth after that date would instead be subject to indexation.

Our initial calculations suggest the difference between these two treatments could be significant.

Obtaining and documenting a valuation at 30 June 2027 may provide a clear starting point for any future sale or equity transaction.

Buying into a business

Incoming shareholders should also review how they intend to hold their equity.

For example:

Should the shares be purchased through a family trust?
Would personal ownership be more appropriate?
Should the shares be held through a company?

Many accountants are waiting for the final legislation before making firm recommendations. However, anyone currently buying equity should begin considering the available structures now.

There has also been discussion about increased ATO scrutiny of companies with different share classes, particularly where these structures are used as an alternative to family trust arrangements.

Existing shareholders

Even when you have no immediate plans to sell, documenting the value and cost base of your shares can save considerable time and uncertainty later.

These are not publicly listed shares with a readily available transaction history. Trying to reconstruct the value of a privately owned business many years after the event can be difficult.

I keep an annual record of my own interests with my family trust deed, will and power of attorney. It is much easier to maintain this information as you go than to recreate it when a transaction, dispute or unexpected event occurs.

A note about business valuations

There are currently many valuation services being promoted to business owners. However, not every report will meet the standard required by the Australian Taxation Office.

A suitable valuation should:

Be independent and supported by objective evidence
Clearly explain the facts, assumptions and valuation methods used
Use a methodology that is appropriate for the industry and the type of transaction
Consider the highest and best use of the business or asset
Be capable of being defended if reviewed by the ATO, a court or a tribunal

A simple appraisal based only on recurring revenue may not be suitable for every transaction or tax purpose.

Choosing the cheapest or fastest valuation option may create a much larger cost later if the report cannot withstand scrutiny.

Other Budget Measures

Several other Budget announcements may affect small businesses, although their relevance to financial planning firms will vary.

Instant asset write-off: The Government has announced that the $20,000 instant asset write-off will become permanent.

This may be useful when investing in IT infrastructure or other eligible business assets. Only the business-use portion of an asset will be deductible.

Monthly tax instalments: Businesses may be able to choose monthly income tax instalments rather than quarterly payments and adjust those instalments using real-time accounting data.

This provides greater flexibility, although it may have limited practical impact for professional services firms with relatively consistent income.

Start-up losses and loss carry-back: These measures are unlikely to have a significant effect on most financial planning businesses, which generally remain profitable or manage their early expenses through reduced owner salaries.

Negative gearing and superannuation borrowing: The proposed changes to negative gearing and limited recourse borrowing arrangements relate primarily to residential property and are unlikely to directly affect the day-to-day operation of an advice business.

At this stage, negative gearing remains available for commercial property, including office premises.

Testamentary trusts: The Government’s change in direction on testamentary trusts is positive for clients seeking to protect vulnerable children or other beneficiaries.

We occasionally see financial planning businesses operated through testamentary trusts, but this can create considerable complexity and risk. Specialist legal advice is essential.

More broadly, owners should ensure there is a practical plan for transferring control of the business if they die or become unable to work.

The days immediately following the death of a business owner are not the time for family members to discover that no one else can access bank accounts, approve payments or manage the practice.

Where possible, ownership and operational responsibility should be transitioned to future leaders while there is still time to do so properly.

Changes to the small business CGT concessions

The proposed increase in the small business turnover threshold from $2 million to $10 million is a positive development for many business owners.

However, there may still be gaps for people selling shares rather than an entire business.

For example, someone holding less than 20% of a company may not qualify as a significant individual and may therefore have reduced access to the small business CGT concessions.

The expanded threshold may assist business owners who are selling an entire client base, although many practices of that size already fall below the current $2 million turnover threshold.