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Much hay has been made in the last week about the potential impact of Jim Chalmers’ proposed tax changes on small businesses, such as law firms. Getting less attention is the pivot that boutique practices will have to make as they adjust to a new economic environment.
Last week, Treasurer Jim Chalmers handed down his fifth federal budget, in which he said the Albanese government has chosen the “hard road on reform, not the path of least resistance” in determining measures for this year’s budget – including making “a number of difficult decisions … to reform our tax system” for workers, businesses, and future generations.
If one were to spend a few minutes scrolling one’s LinkedIn feed, or even take the most cursory glance at mainstream media outlets’ homepages, one would be inundated with doomsday takes on the potential impacts to businesses and investors. Such predictions may, of course, turn out to be correct; however, what isn’t getting as much notice is how law firms can and must respond to the proposed changes, particularly on the fronts of future investments and advisory capabilities.
Necessity of tech investments
Ironbridge Legal founder and partner Trevor Withane observed that perhaps the most significant measure announced by Treasurer Chalmers was the making permanent of the IAWO. For law firms, he said, this will almost certainly accelerate movement towards investments in needed technologies (not including traditional equipment purchases).
“Many boutique and mid-sized firms are increasingly investing in AI-assisted legal tools, cyber security systems and practice management software while trying to maintain lean staffing structures and competitive pricing,” he said.
“The ability to immediately deduct eligible depreciating assets, such as hardware, servers and on-premise software, may encourage faster adoption of those systems where they are acquired as capital items rather than subscriptions.”
This said, Withane mused, how much of a law firm’s tech stack is “really ‘on-prem’ these days” remains an open question for each business owner.
More broadly, he went on, the budget seems to signal the government’s expectation that SMEs will continue transitioning towards digital and automated operating models.
That trend is likely to accelerate within the legal profession, he said, as clients continue demanding greater efficiency and value.
“The broader takeaway for law firm owners is that technology adoption and operational efficiency are no longer simply growth strategies; they are increasingly becoming necessary components of remaining commercially competitive in a more cost-conscious market,” he said.
“That’s why we invest heavily in advanced and advancing technologies and associated staff training.”
Hastened movement towards strategic advisory
New Chapter Legal principal Rex Afrasiabi observed that the significant impact on Australia’s property sector, caused by the CGT changes, will “inevitably” flow through to the legal profession.
“Historically, major taxation changes impacting property investment have resulted in a more cautious market, with investors reassessing acquisition strategies, asset structures and long-term holdings,“ he said.
“This has a direct impact on the broader ecosystem of professionals servicing the industry, including lawyers, mortgage brokers, accountants and real estate agencies.”
For law firms heavily involved in property, conveyancing, development and commercial advisory work, Afrasiabi said, any reduction in investor confidence is likely to affect transaction volumes and development activity.
At the same time, he continued, these changes are expected to increase demand for strategic legal advice.
“Clients are already seeking guidance around restructuring, trust arrangements, succession planning, asset protection and tax-effective investment strategies in response to the new framework,” Afrasiabi said.
“More broadly, the legal industry continues evolving from purely transactional work into strategic advisory services.”
“During periods of economic and regulatory change, commercially minded lawyers become increasingly valuable in helping businesses and investors manage risk, navigate uncertainty and make informed commercial decisions in a rapidly changing environment.”
Broader business concerns
While law firms across the country will have to consider how best to pivot on the aforementioned fronts, advocacy groups continue to beat their chests about the budget measures.
The Council of Small Business Organisations Australia (COSBOA) warned that the proposed CGT and discretionary trust changes risk unfairly capturing genuine small businesses, increasing complexity, undermining investment confidence, and weakening productivity across the economy.
COSBOA chief executive Skye Cappuccio said that small businesses should not become collateral damage in tax changes that do not reflect the reality of how they operate.
“These are genuine small businesses that employ Australians, support local communities and have often been built over decades through significant personal and financial sacrifice,” she said.
“Small-business owners are increasingly concerned they will be unfairly impacted by changes that do not properly recognise how their organisations actually operate.
“These are not abstract tax settings for small-business owners. These decisions are deeply personal and directly tied to retirement planning, succession planning, family livelihoods and the future of businesses built over generations.”
The proposed changes, Cappuccio went on, risk undermining one of the fundamental incentives that drives entrepreneurship and long-term small-business investment in Australia.
“Small-business owners take risks, accept uncertainty and often sacrifice stable income to build businesses that employ others and contribute to the economy.”
Elsewhere, Business NSW chief executive Daniel Hunter added that these changes could see many SME owners face huge tax increases on the sale of business assets.
“Many small-business owners pay themselves modest wages while carrying significant financial risk,” he said.
“These changes are a tax bomb and could see owners hit with massive tax bills in a single transaction after decades of work.”
The discretionary trust change, he continued, fails to reflect how family businesses are structured and operate. “Trusts are widely used by SMEs for succession planning, asset protection and managing variable income,” Hunter said.
“The change could force restructuring and add compliance and advisory costs at a time when many businesses are already under pressure.”
Cappuccio concluded that Australia cannot build productivity by increasing the tax burden on small businesses.
“If we want a stronger economy, we need policies that encourage entrepreneurship, investment, and long-term business growth – not settings that make it harder, more expensive, and more uncertain to build a small business in Australia,” Cappuccio said.
But Dr Tamara Wilkinson, a law lecturer at Monash University, pushed back on the fear-mongering, noting that measures like the CGT changes are balanced by “generous” offerings such as loss refundability, the IAWO, and the expanded R&D incentives.
“Ultimately, while the tax landscape is shifting, the fundamental opportunities for Australians to save, start businesses, and build wealth over time remain largely intact,” she said.
Jerome Doraisamy is the managing editor of professional services (including Lawyers Weekly, HR Leader, Accountants Daily, and Accounting Times). He is also the author of The Wellness Doctrines book series, an admitted solicitor in New South Wales, and a board director of the Minds Count Foundation.
You can email Jerome at:
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