Clients receiving superannuation and retirement advice now have more opportunities to claim a greater proportion of those services as a tax deduction and practitioners should be examining the rules to assist them in doing so, a technical expert has recommended.
Colonial First State head of technical Craig Day noted the ATO’s Taxation Determination (TD) 2024/7 stated fees for financial advice that relates to managing a client’s tax affairs may be deductible under section 25-5 of the Income Tax Assessment Act 1997 and the guidance specifically mentions superannuation advice.
“What the ATO is saying here is if you’re interpreting and applying tax law to a client’s circumstances, that will meet the definition of tax (financial advice) and the component of your total advice fee that relates to doing that will be deductible,” Day said in a recent technical briefing.
“From a financial advice perspective, what sort of advice would now potentially be deductible? What strategies would require an adviser to interpret and apply tax law to the client’s circumstances?”
He pointed out the TD contained an example of a client seeking advice to maximise their retirement income, resulting in a recommendation to establish an SMSF and increase superannuation contributions by entering into a salary sacrifice arrangement.
“What the TD confirms is the component of the advice that relates to the tax implications of establishing an SMSF would be deductible under section 25-5,” he said.
“There would be other advice implications of recommending an SMSF, such as setting up an investment strategy, recommending a trustee structure, recommending the underlying investments – all of that wouldn’t be tax advice.
“However, interpreting and applying the income tax laws before entering into the salary sacrifice arrangement would also be considered tax financial advice,” he added, noting this would require consideration of the client’s marginal tax rate, tax on contributions, their concessional contribution cap and if Division 293 tax would apply.
He said other retirement matters not mentioned in the TD could also have tax advice components.
“If a client gets to age 60 and decides to turn on a transition-to-retirement income stream, they are swapping their salary and wages, which is assessable income, with exempt income, and if someone is retiring and turning on a retirement-phase income stream, that income is treated as tax exempt, so it doesn’t impact their assessable income,” he said.
“Generally, these matters would be not deductible under the general expenses provision, but this determination is saying they would potentially be deductible under the tax-related expenses for managing tax affairs, and it doesn’t matter whether that’s an ongoing advice relationship or this is the first time you’ve seen this client.”
