Strong progress regarding the tax deductibility of upfront advice fees can be further strengthened

The Financial Advice Association Australia (FAAA) says the ATO can build upon the progress made in its public release of revised tax deductibility guidance in December 2023 by further refining its position where advisers are providing advice to clients with pre-existing investments (to enable a broader set of scenarios where a deduction may be available).

The call is part of the FAAA’s submission in response to Draft Taxation Determination TD 2023/D4, prepared jointly with Chartered Accountants ANZ, CPA Australia, and Institute of Public Accountants.

The draft Determination released late last year outlined that upfront fees (if provided by a Qualified Tax Relevant Provider) are deductible to the extent they relate to tax advice under section 25-5 of the Income Tax Assessment Act 2007 (ITAA). However the FAAA and the accounting bodies are aligned in pushing for further clarification of deductibility of upfront fees under section 8-1 of the ITAA (a general deduction).

The FAAA’s submission also addresses some of the practical issues around apportionment and evidentiary requirements to make it more straight forward for advisers and their clients to identify when deductions for advice on new investments are available.

FAAA CEO Sarah Abood says, “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.

“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.

“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. Whichever way it falls, we will provide practical guidance on how to implement this within advice businesses in the coming months.”

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