ATO cedes little ground on advice deductibility

ANALYSIS

For most of the past decade the Financial Advice Association of Australia (FAAA) has used its pre-Budget submission to argue for the tax deductibility of financial advice and it seems likely that will continue.

Despite nearly five years of consistent lobbying, the FAAA extracted only marginal concessions from the Australian Taxation Office (ATO) on the deductibility of advice fees.

The FAAA’s efforts have resulted in more clarity from the ATO about the deductibility of up-front tax-related advice but not the crucial acknowledgement that the same rules could apply to all advice.

Thus, short of the Government legislating the issue, the reality for advisers is that upfront advice fees remain undeductible because the ATO has refused to budge from its position that fees that do not relate to producing a client’s assessable income are not deductible to the client.

FAAA chief executive, Sarah Abood has sought to emphasise the positives from the five-year process with the ATO.

“The ATO’s view in the final determination confirms its updated view from the draft determination that financial advice fees relating to tax (financial) advice can be deductible under section 25-5 (which deals with tax related expenses) if the advice is provided by a Qualified Tax Relevant Provider (QTRP),” Abood’s announcement said.

“The ATO has maintained its view that other fees relating to initial advice are capital in nature and thus not deductible, and that ongoing financial advice fees are deductible.”

“We want to thank the ATO for bringing this matter to a conclusion.

“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.

“In our most recent consultations, we asked the ATO to reconsider the deductibility of upfront fees under section 8-1 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,” Abood’s statement said.