The ATO has released updated guidance as to how individuals can claim deductions for financial advice fees, finalising an issue that has been under discussion since 2019.
The guidance was released as Taxation Determination (TD) 2024/7, which states financial advice fees relating to tax (financial) advice can be deductible under section 25-5 of the Income Tax Assessment Act (ITAA) 1997 if the advice is provided by a qualified tax relevant provider (QTRP).
The Financial Advice Association Australia (FAAA) noted this confirms the ATO’s position released in draft TD 2023/D4 and the regulator has maintained its view that fees relating to initial advice are capital in nature and not deductible, while ongoing financial advice fees are deductible.
FAAA chief executive Sarah Abood said the final determination was the end point of five years of advocacy work to replace TD95/60, which was first released in December 1995 and withdrawn late last year, and the ATO considered feedback from the association and major accounting bodies in finalising its view.
“The confirmation that initial advice related to tax is deductible, when provided by a QTRP, is a big improvement over the original TD, which did not support deductions for upfront advice to any extent,” Abood said.
“In our most recent consultations, we asked the ATO to reconsider the deductibility of upfront fees under section 8-1 [of the ITAA] for other types of advice as well, particularly for clients with pre-existing investments. The ATO has not agreed to this. However, we are very happy after five years to now have clarity with the final TD 2024/7.
“With the added clarity surrounding deductions under section 25-5, we believe a significant portion of a typical advice fee will be deductible for the clients of many advisers and practices. Increased deductibility of advice fees should help make advice more affordable for many Australians.
“We can now start the process of developing clear guidance for our members on the ATO’s view and how to engage with their clients and accountants on this.”
She added revised guidance with explanation, interpretation and practical support would be available to FAAA members in early 2025.
