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

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

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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.

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:

  1. Provide an exemption under the Fringe Benefits Tax (FBT) legislation
  2. Make all Australian gym and active health memberships tax-deductible
  3. 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.

Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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