On Wednesday (14 December), the ATO announced it would be releasing a draft taxation determination on deductions for fees paid for financial advice.
The draft determination will set out the 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.
It will broaden and replace TD 95/60 once completed, which is expected to happen in mid-2023.
FPA chief executive Sarah Abood noted that the FPA has long been advocating for broad tax deductibility of both initial and ongoing financial advice fees.
“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,” said Ms Abood.
While the FPA has long been advocating for financial advice fees to be made tax-deductible, it has also highlighted concerns with the ATO’s current guidance on the deductibility of advice.
“Tax Determination 95/60 considers an upfront fee paid for an investment plan in 1995. IT39 reflects an ongoing fee paid on an investment portfolio in 1980. 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,” Ms Abood explained.
“The ATO’s commitment to issue a new Tax Determination — indicating its willingness to modernise its longstanding view on this important issue — will provide more certainty to our members and the broader community of Australians who benefit from comprehensive financial advice.”
Ms Abood said there are two critical areas of the current Tax Determination that the FPA is keen to see reviewed.
“The first relates to the timing of advice. The current view is that financial planning 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,” said Ms Abood.
“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.”
The FPA said it would continue to work closely with the ATO and wider profession to help ensure that tax deductibility of financial advice fees becomes a reality in all stages of the financial advice process.
