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Financial Planning Association (FPA)

The case for tax deductibility of financial advice fees

John Hewison
Founder and Director
11 Feb 2014

There has long been the debate about the tax deductibility of financial advice fees and the Financial Planning Association (FPA) has recently raised this issue again with the minister Arthur Sinodinos.

The Minister has since indicated that tax deductibility of these fees is not on the government agenda for reasons of affordability.

The general rule regarding tax deductibility of costs under section 8.1 of the Taxation Assessment Act 1997 is that it is a cost incurred in the generation of taxable income. In its previous assessment of financial advice costs under TD 95/60 the ATO determined as follows:

“Expenditure on drawing up the plan is incidental and relevant to outlaying the price of acquiring the investment(s), and is so associated with the making of the investment(s) as to warrant the conclusion that it is capital or capital in nature.”

This is quite incorrect as a general statement. Most investments generate taxable income as well as capital gain. In fact it could be argued that the capital gain is an inflation hedge enabling the continuing increase in the level of taxable income over time.

The TD goes on to say:
“The expenditure may qualify as an incidental cost to the taxpayer of the acquisition of the assets (i.e. the investments for capital gains tax purposes).”

The reality is that financial advice relates specifically to the accumulation of wealth for the ultimate purpose of generating income. This goes directly to the purpose as stated in section 8.1. which means that these costs ARE deductible, either as income or capital gains deductibility.

It should be noted that “ongoing management fees or retainers” are deductible under Section 81.
The notion that consumers could or should have to administer the future capital gains tax deductibility or fees originally paid for advice is just ridiculous and unfair.

The Minister should simplify the issue and make financial advice fees tax deductible against income and capital gains tax assessable against future gains on sale of assets.

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Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email info@hewison.com.au or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.