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The Australian Taxation Office (ATO) has finally clarified when individuals who aren’t running an investment business can claim deductions for financial advice fees. TD 2024/7, finalised in September 2024, outlines the circumstances in which financial advice fees are deductible and sheds light on areas of ambiguity. Here’s a breakdown of the ATO’s position.
✅ What’s Deductible According to the ATO:
Ongoing Financial Advice on Existing Investments:
Fees for advice on existing or ongoing income-producing investments are deductible under section 8-1 of the Income Tax Assessment Act (ITAA) 1997. This covers continuing advice on managing investments you already hold, such as reviewing the performance or suitability of the investment.
Tax (Financial) Advice:
Advice that helps manage your tax affairs, provided by a registered tax (financial) adviser or tax agent, can be deductible under section 25-5 of the ITAA 1997. This includes advice related to determining tax liabilities, obligations, or entitlements under tax law, as long as the advice is linked to managing your tax responsibilities and not classified as capital expenditure.
Income Protection Insurance Advice:
If the premiums for your income protection insurance are deductible, the advice fees related to this insurance can also be deductible. The ATO recognise that these fees help ensure you manage your taxable income.
What’s Not Deductible:
Advice on New or Proposed Investments:
Fees for advice related to new investments that are not yet purchased are considered capital in nature. Since these expenses are incurred before any income is generated, they are not deductible. This includes advice on whether or not to invest in certain assets.
Initial Advice from a New Adviser:
If you’re working with a new financial adviser, the fees for initial advice on structuring your existing investments won’t be deductible. The ATO classifies these as capital expenses related to setting up or restructuring an income-producing activity, which does not directly relate to earning income.
Non-Deductible Insurance & Estate Planning:
Fees related to advice for non-deductible insurance policies (e.g., life, total and permanent disability, or trauma insurance) are considered personal and private expenses and are not deductible. Similarly, one-off advice for estate planning or establishing a self-managed superannuation fund (SMSF) is viewed as capital expenditure and won’t qualify for deductions.
Household Budgeting:
Any fees paid for advice on personal household budgeting or managing everyday expenses are not deductible, as these are private in nature and don’t relate to generating assessable income.
ATO’s Broader View on Tax Financial Advice:
While the ATO’s final position generally mirrors its earlier stance, it takes a broader view when it comes to tax (financial) advice. Under section 25-5, if advice is specifically related to managing tax affairs, it can be deductible even if it’s provided by a financial adviser (as long as they are registered with ASIC or the Tax Practitioners Board).
However, not all financial advice qualifies. For instance, if the advice is just factual information about financial products, it won’t be deductible.
How to claim financial deduction advice
To claim a deduction for financial advice, you need:
An itemised invoice from your adviser detailing the service, cost, and date.
If only part of the fee is deductible, a reasonable apportionment of the deductible portion must be made.
Evidence that the advice was directly related to managing income-producing investments or tax obligations.
Superannuation Funds:
New legislation, effective from January 2025, allows large APRA-regulated superannuation funds to pay for personal advice fees from members’ accounts. However, SMSFs are excluded from this, meaning they can only cover advice related to fund trustees, not members’ personal financial advice.
Final Thoughts
The ATO’s updated guidance emphasizes that deductions for financial advice are closely tied to income generation or tax management. If you’re paying for financial advice, be sure to distinguish between deductible and non-deductible fees, and keep thorough records to support your claims.
Consult with a qualified adviser to ensure you’re taking full advantage of the available tax deductions while staying compliant with ATO regulations.