The debate on whether a tax deduction should be granted for the cost of financial planning fees has flared again, with the Institute of Public Accountants (IPA) calling for a tax break.
According to the IPA, making all of the costs of financial planning advice tax deductible will go a long way in keeping that advice accessible and affordable.
A fee-for-service arrangement for the preparation of an initial financial plan is currently not tax deductible as it is not considered to be an expense incurred in producing assessable income.
However, Australian Tax Office guidance (Taxation Ruling IT39) states that where expenditure is incurred in “servicing an investment portfolio”, it is incurred in relation to the management of income-producing investments, has an intrinsic revenue character and is therefore deductible.
“Allowing initial fees to be tax deductible would considerably assist consumer access to affordable financial advice,” said IPA chief executive officer, Andrew Conway (right).
“Right now, the absence of a tax deduction for these fees discourages many Australians from pursuing strategic advice which would help them to organise their finances and increase their financial independence.”
It is a sentiment shared by the Financial Planning Association (FPA) and the Association of Financial Advisers (AFA), with chief executive Brad Fox supporting the IPA’s call when contacted by Professional Planner.
In the past government has taken the view that such a tax deduction would only benefit high-net-worth individuals instead of incentivising the 80 per cent of Australians without a financial planner to consider seeking advice.
While Dante De Gori, general manager of policy and government relations for the FPA was not immediately available for comment, the association has previously recommended tax deductions.
In a submission to the federal budget last year, the FPA suggested a tax deduction be available for the cost of upfront financial planning fees to make “financial advice more accessible and improve the long-term financial security of Australians”.
According to Conway, IPA members are well positioned to assist Australians to organise their finances and plan for retirements by providing advice when the new limited-licensing regime commences for accountants on July 1, 2013.
“Already more than 70 per cent of the population seek the services of a tax agent for assistance,” he said.
“This new limited-licensing regime provides a genuine opportunity for accountants to provide strategic, non-product, affordable advice to the community within the financial services regime.
“The cost of tax deductibility for financial planning advice will be significantly outweighed by the longer term benefits of assistance provided to tax payers as they plan for independent retirement.”
