The Australian Taxation Office has expanded what financial advice fees are considered deductible, but further advocacy work is needed to convince the tax office of full tax deductibility of advice fees.
The ATO announced this week in its final determination regarding the tax deductibility of advice fees that advice fees relating to tax advice can be deductible, if the advice is provided by a qualified tax relevant provider.
However, the ATO maintained its view that other fees relating to initial advice are capital in nature and not deductible, but that ongoing financial advice fees are deductible.
The Financial Planning Association, before it merged with the Association of Financial Advisers to create the FAAA, had started a campaign to expand tax deductions for financial advice fees.
Tangelo Advice Consulting had been working on behalf the associations for five years on the project which finally led to an ATO consultation in late 2022.
Tangelo principal consultant Conrad Travers tells Professional Planner that the determination strengthens the view that financial advice is a profession and so it is a major step in the right direction.
“Financial advisers are qualified and are delivering fantastic advice every day to Australians and this outcome further legitimises and supports that,” Travers says.
“I believe that financial advisers are giving a significant amount of tax advice currently and the majority are registered as qualified tax relevant providers.”
Travers says this means a strong portion of the upfront fee may be deductible.
“If this is the case, more Australians are likely to seek advice and a higher percentage should hopefully convert, because their net cost is reduced due to the fee being deductible.”
Despite this outcome being a victory for financial advisers, there are still steps to be taken to achieve full deductibility which would be a huge benefit to the profession.
Travers confirms that the FAAA will continue to advocate for “full deductibility on behalf of all financial advisers”.
Marshan Consulting director Ben Marshan, who was head of policy at the time the FPA commenced the advocacy project, describes the ATO outcome as one element of a longer desire to see financial advice recognised as critically important to clients and being recognised by the government as being beneficial.
He also emphasises the importance of bringing tax deductibility for financial advice to the forefront.
“Just having it out now, having this conversation and having clarity around how it operates are all incredibly important steps to make advice more affordable and accessible for Australians,” Marshan says.
The 1995 determination did not recognise financial advice as a tax service and was very specific to investment advice. The team in collaboration with the FAAA worked to modernise the determination for financial advisers. Marshan describes the outcome as “clarifying, modernising and bringing up to date”.The 1995 determination did not recognise financial advice as a tax service and was very specific to investment advice. The team in collaboration with the FAAA worked to modernise the determination for financial advisers. Marshan describes the outcome as “clarifying, modernising and bringing up to date”.
Although the FAAA intends to continue to advocate for full deductibility, this does not take away from the successful outcome.
Travers said the hard work the members contributed in collaboration with the FAAA was crucial to the positive outcome.
“The perseverance, having the right team with the right skill sets and working collaboratively with the regulatory body we are working (in the interests of the profession) will always win in the long-run.”
Marshan praised the work of the advocacy team and Travers especially.
“The fact that Conrad and the people he put together around the project were committed to it for five years was just a monumental effort,” Marshan says.
Marisa Broome, Wealthadvice principal and former FPA chair from 2018 to 2022, says she is “absolutely delighted” there is finally an outcome after years of fighting for recognition for the financial advice profession.
Broome sees the outcome as a major success in legitimising financial advice as a real profession after many years.
“It’s significant because it’s actually recognised that financial advisers are providing more than investment advice, they’re actually providing strategic advice around tax issues,” Broome says.
“It recognises us as a profession in the eyes of the tax office – that in itself is a real win.”
Referring to the contents of this TD as an “expansion” of what advice fees are deemed deductible is a bit of a stretch. It’s more of a refinement and, given the urgent need to make advice more affordable, goes nowhere near achieving that goal. Personally, I’m bitterly disappointed in the outcome, given all the hype in the lead-up.