Compliance Corner – Tax Deductibility

Hi Team! 

Press in the last couple weeks has confirmed that the ATO in its TD 2024/7 that the upfront fee for financial advice, may be deductible under s25-5 of the Income Tax Assessment Act. However, it is only deductible to the extent that the advice relates to managing client’s tax affairs. 

 

Our View – A positive step in the right direction. However, we feel there is a distinct lack of guidance on this and in addition, not something that is easy to administer. 

 

Challenges include: 

  • Identifying portion of fees that are attributable to tax affairs and apportioning them correctly, something we are not skilled in doing.  
  • More disclosure in the advice templates, as we will be required to provide a breakup of fees in the advice document that are deductible. 
  • Further compounded where advice is provided to multiple entities  
  • Collaborating with the clients Accountant will delay the presentation of the advice and in some cases, you may not get a definitive response in anything that looks like a timely manner.  
  • If the Adviser made a call on the Percentage which is Tax related advice, the clients Accountants may have a differing view – and more so the ATO if there is ever an audit on client’s affairs. 

 

Our Position – This is really good news, and we would encourage you in your discussions with your clients to make the point about this change. In time, there will probably be more clarity to what part of the client fee can be claimed as deductable.  

 

As a financial planner myself, I am very sceptical about the application of this change in my business. I would rather keep it simple and avoid getting into trouble for not calculating it correctly. However, this is my personal view and not necessarily the AFSL view.  

 

Some of you are experienced Tax Professional by Education, and your advice on this to a client has more of a “reasonable basis” and will be more easily established if something turned pear shaped with a client. 

 

For the rest of us, I intend to create a paragraph in our Advice Documents which will basically disclose that “the portion of your upfront Advice fee related to Tax Advice is Tax Deductable under s25-5 of the Income Tax Assessment Act. Please work with your Accountant on the exact calculation….”. 

 

If you believe there is a differing position, as always, I am willing to work with you and if deemed appropriate, approve it for your use. 

 

Chandar Varadhan 

Director and Professional Standards Manager 

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