The tiny ASX stock that could surge on this pending government decision

Will a tax break help this little company set a new PB?

Mitchell Lawler

Mitchell stumbled upon the concept of investing when in high school, devotedly urging his parents to put some money into a handful of technology companies with increasingly popular products among his demographic – many of which have gone on to great success. It wouldn’t be until 2017, some five years later, that Mitchell became an investor of his own money. Having studied and worked as a mechanical engineer in the building services industry, Mitchell takes a methodical and analytical approach to evaluating businesses. Rather than relying purely on numbers, Mitchell drills beyond a company’s metaphorical mantle to unearth obscure patterns or competitive advantages that would go otherwise unnoticed. His expertise resides within areas such as software, consumer goods, and building services equipment. However, his quest to find quality companies that set the industry standard and flex some degree of an impenetrable position has no limits – small cap to mega cap, cosmetics to healthcare – if it’s an exceptional business it’s on his radar.

Published April 4, 2024 7:30 am AEDT

Changes to government legislation can impact Aussie businesses. That's why staying abreast of proposed changes can be vitally important. Depending on the policy, it can quickly create opportunities and adversities for ASX stocks.

In saying that, I wouldn't pick companies to invest in purely based on government policies. There also needs to be a quality business underneath.

It's akin to surfing. A beach with great waves is a good start — these are the industry tailwinds — but if you're a hopeless surfer (company), you'll still struggle to make the most of the conditions. Good surf matched with talent, though, is a dangerously good combo.

A happy woman wearing a sweatband at the gym celebrates success or an achievement by puffing up and flexing her muscles with pride. — Image source: Getty Images

Why this ASX stock could be a winner

AUSactive, an exercise and active health industry association, is pushing for some inclusions in the 2024-2025 Federal Budget.

In its submission, AUSactive calls for the government to:

Provide an exemption under the Fringe Benefits Tax (FBT) legislation
Make all Australian gym and active health memberships tax-deductible
Educate Australians on the importance of physical activity

Current legislation only allows a tax deduction if the person's profession requires high fitness. However, AUSactive argues that the country would benefit from removing this stipulation. The association justifies this by pointing out an estimated $1.7 billion of costs directly from physical inactivity.

The submission highlights that 75% of Australian adults are not meeting recommended activity levels. By making memberships tax deductible and introducing an FBT exemption for employers, AUSactive believes Australia can improve its disease incidence, reduce absenteeism, and increase productivity.

One ASX stock that could arguably benefit if the government adopts this recommendation is Viva Leisure Ltd (ASX: VVA).

Operating across 345 locations (168 owned), Viva Leisure has built a considerable presence in the Australian health club industry. The company operates through several brands, including Club Lime, HIIT Republic, Plus Fitness, and GroundUp.

Viva's half-year results show the company served 180,071, generating $79.1 million in revenue. That roughly works out to be $16.90 per member per week.

The upshot

If AUSactive's submission goes ahead, we could see an increased push for gym signups. More employers may see fitness memberships as a good way of retaining employees, helping boost nationwide gym numbers.

Furthermore, if memberships become tax deductible, people might be inclined to upgrade and pay extra for the 'next tier'.

Both situations would increase revenue and likely profits for an ASX stock such as Viva Leisure.

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