The ATO will review its stance on the tax deductibility of financial advice fees and update its position, which was set in 1995, in a move welcomed by the Financial Planning Association (FPA).
The regulator stated income tax deductions for fees paid for financial advice would be the subject of a draft taxation determination (TD) that would broaden and update TD 95/60, originally handed down by the ATO on 6 December 1995.
“This 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,” the ATO said on its website.
FPA chief executive Sarah Abood welcomed the move, which comes after many years of advocating for the 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,” Abood said.
“While we continue to advocate strongly for this outcome with government, we’ve also been calling out concerns with the ATO’s current guidance on deductibility of advice.”
She noted TD 95/60 considers an upfront fee paid for an investment plan in 1995, while Taxation Ruling IT39 considered ongoing fees 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,” she explained.
According to Abood the FPA was hoping to see the review include the timing of advice and the provision of taxation 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,” she suggested.
“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.”
