The Financial Planning Association (FPA) has put the issue of tax deductibility of financial planning fees firmly back on the agenda in its pre-Budget submission to Treasury.
In its submission, the FPA argues that under the Future of Financial Advice (FoFA) regime, fees paid by clients to financial planners are explicitly non-conflicted. And where there is a clear connection between the payment of the fee and the intention on the part of the taxpayer to generate assessable income, there is a strong case to allow a tax deduction for the fee paid.
The FPA is also arguing that from July this year financial planners will be registered with the Tax Practitioners Board and will be subject to the provisions of the Tax Agent Services Act (TASA). The FPA points out that an amendment to the act last year “defines a tax (financial) advice service as a type of tax agent service”.
“Including financial planners in the Tax Agent Services regime, and the banning of commissions on financial advice, set the right environment for the introduction of tax deductibility of financial advice fees,” the FPA submission says.
The FPA’s general manager of policy and conduct, Dante De Gori, says the FPA is agnostic on the issue of how a fee is constituted – whether it’s a fixed retainer, an hourly fee, or based on funds under management (FUM).
“From a tax perspective and an ATO perspective in terms of tax principles, there has to be a nexus between the fee and production of income,” De Gori says.
“We strongly feel the fee you pay a financial planner, in terms of the advice that’s provided, is ultimately for some type of wealth creation. Even though that plan may be over a long period of time – it might be a retirement plan – it’s ultimately designed to create wealth and ultimately income. So we think the connection is clear. In fact it’s probably more direct that the deduction you get for [your accountant].”
De Gori says deductibility should apply to upfront or initial fees as well as for ongoing fees. Until now, upfront fees have not been considered for deductible status because they have been considered part of the cost of putting investment asset in place. In addition, the upfront cost of a financial plan was often funded by a payment from a product manufacturer – a commission – to a financial planner, rather than by a fee paid by the client to the planner.
“That also worked against that process,” De Gori says.
“What we’re saying now is that you remove commission from the equation, the fees that are charged by advisers in respect to the services they provide are by definition not commission – they are some sort of fee arrangement. The calculation of that fee arrangement is the detail you’re getting to, and whether or not there is a need to define what that fee structure has to be in order for it to be tax deductible.
“We are making the case that because of the FoFA changes and the removal of commission – the banning of that – all fees therefore are now defined by law as non-conflicted ; and point number two is that TASA, and the fact that financial planners will be subject to the tax agent services regime, adds an extra element of weight that we feel justifies that financial planning fees should be tax deductible.
“They’re the two principles that we’re pushing, and we are not explicitly saying that the fee charged by the planner has to be done by this method, ie hourly based, or whatever. We’ll be making the point that the fees charged today by financial planners for the financial planning services they’re offering are, by definition, non-conflicted.”
“Mind you, we would be interested in any suggestion by the government or by Treasury to indicate that maybe they should be capped or means-tested. But if it means that everyday Australians would be encouraged to seek advice if their fees were tax deductible, that’s the ultimate aim.”
