Advice value-add justifies tax-deductibility
The nature of financial advice delivery in 2024 is incremental in nature and justifies it being given tax deductible status by the Commissioner of Taxation.
The Financial Advice Association of Australia (FAAA), the SMSF Association and the major accounting groups have welcomed some elements of change to the Australian Taxation Office’s approach to financial advice but is arguing that it needs to go further in recognising the value-add delivered by advice.
At issue is overcoming the Tax Commissioner’s view that money spent on financial advice does not result in producing assessable income.
FAAA chief executive, Sarah Abood said that while the joint advice and accounting groups appreciated the clarity provided by the ATO around the deductibility of upfront fees, it needed to go further.
“We 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,” she said.
The joint submission argues that much has changed between 1995 and 2024 and that, today.
“…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. Practically, this requires consideration or advice regarding an individual’s pre-existing income producing assets. In this instance there is a clear nexus between that person’s existing income, liabilities, financial assets and the new investments acquired in accordance with the advice. This makes the advice incremental in nature,” the submission said.
“Given financial advice is most often provided to working or older Australians with existing investment portfolios, looking to provide for their families or retirement, it is considered that the vast majority of financial advice requires specific consideration of pre-existing income producing assets,” it said.
“Given this, the Commissioner should consider specific examples where advice requires either consideration about pre-existing income producing assets or specific advice on such assets. In this context, the Draft Determination should reflect the case for tax deductibility of financial advice fees as part of an initial advice arrangement,” the submission said.
I have never understood the ATO’s refusal to allow tax deductibility for initial advice based on it being for a “new” investment that hasn’t earned any taxable income yet. That “new” investment hasn’t suddenly materialised out of thin air. It is almost always a switch from an existing taxable income earning investment. Usually cash.
Yet the burden of making financial advice more affordable for the millions of Australians that need it has been placed on squarely on Advisers…
Provide a deduction and relief from massive SoAs and we will be swamped with people wanting advice. How about a test run?
Introduce both measures for one financial year and measure the uptick in advice.
I once had a section of my business that handled salary packaging and novated leasing for PBIs. The irony was that once packaging was in place, these people were all $120 a fortnight better off. But they couldnt afford even a $330 upfront fee.
So I decided to offer the advice for free on the proviso that they paid $22 a fortnight for ongoing help – which, as it turned out, they all needed constantly.
We were swamped. Soon we had hundreds of clients and they have, for the most part, gone on to become financial planning clients.
But getting them in front of an adviser was the key.
What has happened to common sense?
Even a 50% deduction on upfront would make a massive difference.