The Australian Taxation Office’s (ATO’s) increased focus on Australia’s rich is driving already high demand for tax advice. In a market where only one third of providers offer dedicated tax advisory services, this represents a significant opportunity.
Our proprietary wealth management Service Opportunity Index, as discussed in our Wealth in Australia: HNW Investors 2018 report, shows there is a significant opportunity to be had in the tax advisory space in Australia, thanks to a strong rise in demand.
To some extent the strong and rising demand for tax advice can be attributed to the ever-increasing complexity of the global tax system, but local market factors also play a role. For example, the ATO’s increased focus on wealthy individuals will support demand over the coming years. In 2017, the ATO announced it would be targeting hundreds of HNW individuals with more stringent checks. Data leaks such as the Panama Papers, which are becoming a common feature of offshore banking, have also prompted the ATO probes. In the Panama Papers breach, 1,400 Australians were cited with roughly 570 requiring additional investigation.
Traditionally the ATO has relied on audit and review activity to uncover potential irregularities. However, Will Day, the agency’s new deputy commissioner of private groups and high-wealth individuals, has been conducting one-on-one interviews with representatives of Australia’s richest, making tax more of a focal point and bringing it to the forefront of investors’ minds.
By the end of 2017, the ATO had already conducted 320 interviews, targeting those with among more than A$350m in turnover or more than A$500m in net assets. According to the ATO’s latest annual report, 77 cases with HNW individuals were settled in 2016; this number is likely to be higher in 2017 and 2018, as greater emphasis is now placed on large and unusual transactions, the misuse of trusts, and lifestyles that do not match after-tax income.
A further 1,200 interviews with individuals in lower asset bands are planned during the course of 2018. This will result in increased demand for tax advisory services, as investors will be eager to ensure their affairs are in order. No one wants to be interviewed by the ATO while suffering a guilty conscious. Yet, out of the two thirds of surveyed wealth managers that don’t offer tax advice, only a very few indicated that they are planning to offer this type of service over the coming two years. This is a lost opportunity, and wealth managers that lack the resources or in-house expertise will do well to consider partnerships with accountancy firms. Clients and prospects will appreciate it.
Note: The Service Opportunity Index is part of GlobalData’s HNW Product and Service Demand Analytics. It spans 22 countries, rating the potential for additional wealth management business across 10 different services. Taking into account the competitive environment of a country, the current and future level of saturation, and trends in client demand, a score ranging between one (low) and 10 (high) is assigned. In the advice and planning realm, in Australia the highest score has been assigned to tax advisory services.