After industry campaigning, the tax office is developing guidance on the tax deductibility of advice fees.
The move was welcomed by the Financial Planning Association which has long campaigned for expanding tax deductions for financial advice fees and Tangelo Advice Consulting who have been working closely on behalf of the FPA for the last two and half years on this project.
Tangelo Advice Consulting principal consultant Conrad Travers tells Professional Planner it’s fantastic news the ATO is conducting the review.
“The guidance (TD 95/60) is in our view outdated and doesn’t represent the myriad of regulatory reform that has occurred since 1995.”
The draft determination will set out the tax commissioner’s preliminary view on the deductibility of financial advice fees under sections 8-1 (deductions) or 25-5 (deductions for tax related expenses) of the Income Tax Assessment Act 1997 for individuals who are not carrying on a business.
“We believe there is a strong case under both 8-1 and 25-5 for all financial planning fees to be deductible,” Travers says.
“We believe that in our current environment, around 75 per cent of the strategies an adviser recommends have a tax component to them.”
Travers says the firm looks forward to a potential win for advisers and their clients.
“We are hopeful the ATO review results in a significant change, and an outcome that encourages all Australians to receive financial advice.”
Up for review
FPA chief executive Sarah Abood said the ATO’s consultation process could be a “gamechanger”.
“The FPA has long been advocating for broad tax deductibility of both initial and ongoing financial advice fees,” Abood said in a media release on Thursday.
“One of the quickest and easiest ways to make quality financial advice more affordable for consumers, would be to make it tax-deductible in full.”
However, Abood said there are two critical areas of the current Tax Determination that should be reviewed which relate to the timing of advice and tax (financial) advice.
On the timing of advice, Abood said the current view is financial advice happens “too early in time” to be considered part of the income-producing process.
“However in our view, it’s the character of advice that should determine its tax treatment, rather than purely the timing of the fee paid,” Abood said.
“Secondly, there is currently no ATO view on the tax treatment of tax (financial) advice – which in our view should be fully deductible as a cost of managing tax affairs.”
Old rules
The determination was first written in 1995 and was last updated in 2012 and much of the guidance references laws several decades old.
“Tax Determination 95/60 considers an upfront fee paid for an investment plan in 1995. [Taxation ruling ] IT39 reflects an ongoing fee paid on an investment portfolio in 1980,” Abood said.
“Much has changed in our profession since then, and we believe it’s critical that the guidance be updated to consider the personal advice, subject to the best interest duty, that’s delivered by professional financial planners today.
She added the ATO’s commitment to issuing a modernised tax determination will provide more certainty to FPA members and Australians who seek advice.
The consultation period is expected to be completed mid next year.
