Hi Tammy, are fees paid to a financial adviser tax deductible? Greg, Belrose
Hi Greg, this has been a frustrating grey area for many years. Thankfully, the ATO recently released guidance on the tax deductibility of financial advice fees. By applying this guidance, and structuring the way you pay for advice appropriately, you may be able to significantly reduce the after-tax cost of financial advice.
The fee is incurred in gaining or producing your assessable income
There must be a ‘sufficient connection’ between the expense and income. Where you pay an ongoing advice fee to your existing adviser, to review your existing income producing investment, the ATO considers this a cost of holding the investment that pays you income. Therefore, this fee is tax deductible.
To claim this deduction, you must have paid the fee personally or from an investment account in your name. The income earned must also be taxable to you personally. You cannot claim a deduction for advice fees paid by your super fund. Nor for advice on selecting investments within your super fund, as the resulting investment income is taxable to the fund.
The fee relates to managing your tax affairs
The ATO has confirmed that fees paid for financial advice on managing your tax affairs are tax deductible. This could include advice on income splitting, salary packaging, tax-deductible super contributions, income protection insurance, or the tax implications of selling investments. There is no requirement that income be earned, so the deduction may apply to initial advice fees and advice to acquire a new investment.
There are a few provisos though. Your financial adviser must be authorised to provide tax (financial) advice services. Not all financial advisers are recognised tax advisers, so you need to check this. The advice must involve the application or interpretation of tax laws to your personal circumstances, merely providing factual tax information is not sufficient.
When fees are not deductible
Where all or part of the advice fee cannot be deducted, you may still be able to offset it against the cost base to reduce future capital gains tax on the investment. Incidental costs incurred to acquire an investment are considered capital in nature. This may include both initial and ongoing advice fees, paid to an existing or a new adviser.
Quick Tips: Where advice is provided for multiple purposes, the fee must be apportioned reasonably between the different areas of advice. The application of these rules depends heavily on the individual circumstances and needs to be assessed on a case-by-case basis. Advice fees paid by your super fund may be deductible against income earned by the fund, reducing the tax on your super earnings.
Feel free to call me on 8376 0350 if you have any further questions or need assistance.
Regards, Tammy
Tammy Marshman and Up Wealth Sydney Pty Ltd are Authorised Representatives of Consultum Financial Advisers Pty Ltd, AFSL number 230323, an Australian Financial Services Licensee.
This is general information only, as in preparing it we did not take into account your personal objectives, financial situation or needs. Before acting on this information, you should consider whether it is appropriate for your personal circumstances. Although the information is considered reliable, we do not guarantee that it is accurate or complete and you should not rely upon it. Please seek financial advice specific to your situation before making any financial, investment or insurance decision.
