financial advice, Tax

Industry seeks clarity on fee deductibility

financial advice fees FAAA ITAA TD 2023/D4 ATO tax deduction tax deductibility

A group of industry bodies has urged the ATO to provide further details on the tax deductibility of financial advice given to clients on pre-existing investments.

A group of professional accounting and financial bodies has called on the ATO to provide clarification on its position regarding the deductibility of initial financial advice fees where the advice is provided to clients on pre-existing investments or assets.

Chartered Accountants Australia and New Zealand, CPA Australia, the Financial Advice Association Australia (FAAA) and Institute of Public Accountants made the call in a submission to the ATO regarding draft Taxation Determination (TD) 2023/D4.

The draft TD, released in December last year, outlined upfront advice fees if provided by a qualified tax relevant provider were deductible to the extent they related to tax advice under section 25-5 of the Income Tax Assessment Act (ITAA) 2007.

FAAA chief executive Sarah Abood welcomed the updated guidance, but raised concerns about the deductibility of advice fees under section 8-1 of the ITAA 1997 when financial advice is given to clients with existing investments.

“We appreciate the clarity provided around the deductibility of upfront fees as it relates to taxation. However, we do suggest the commissioner’s prevailing view in one area – that a fee for financial advice in connection with initial financial advice on the proposed investment of existing funds, or even the modification/retention of existing investments, is not incurred in gaining or producing assessable income – can be updated,” Abood said.

She pointed out an update of TD 95/60, which was released in December 1995, was sorely needed as the advisory landscape had changed significantly in the past 30 years.

“An investment plan in 1995 did not necessarily require consideration of an individual’s objectives, financial situation or needs. By contrast, in 2024, all financial advice requires consideration of an individual’s financial situation and needs, with relevant strategies delivered to meet their goals and objectives,” she noted.

“Practically, this requires consideration or advice regarding an individual’s pre-existing income-producing assets. In this instance, we believe there is a clear nexus between that person’s existing income, liabilities, financial assets and the new investments acquired in accordance with the advice.

“Members of the FAAA and the wider financial advice and accounting professions are looking for more clarity on this issue. The key point is that fees on upfront advice are now deductible to the extent that they relate to tax advice and we are continuing to push for a broader interpretation of the deductibility of initial advice fees.”

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