"Are fees charged for utilising the services of a financial planner tax deductible?"
- Question from Simon in Mount Morgan in Queensland
Top answer provided by:
Leandro Bonin
Hi Simon,
Thank you for your question regarding the deductibility of financial planner fees.
This an important query that frequently arises in discussions with clients. The short answer is that it depends on the type of advice you are receiving and how it relates to your overall financial situation.
I will walk you through the key points to help clarify this for you.
Deductibility of Fees
In Australia, the general rule is that fees for financial advice are not automatically tax-deductible. However, certain types of financial advice expenses may qualify for a deduction, while others do not.
Understanding the difference is crucial for working out what you can and cannot claim.
Initial Advice Fees
When you first engage a financial planner to help you establish an investment portfolio or create a financial plan, these fees are generally not deductible.
According to the Australian Taxation Office (ATO), the cost of setting up an investment falls under capital expenditure. This includes fees related to creating a strategy, purchasing investments, or setting up a financial structure, which are considered initial expenses and, therefore, not deductible.
The ATO released a Taxation Determination TD 2024/7 this year to provide more clarity on this topic and the determination reaffirms that fees for advice aimed at establishing an investment are typically non-deductible.
Ongoing Relationship Fees
Where tax deductibility becomes more relevant is with ongoing financial advice.
If you are receiving ongoing advice that helps you manage an income-producing investment, then the fees may be deductible. This could include reviews of your portfolio, advice on changing investments, or other financial decisions that directly affect your taxable income.
For example, if you are paying a financial planner to monitor and adjust your investment portfolio to maximise your returns or ensure you are meeting your income needs, those fees are more likely to be deductible because they are related to the management of your investment.
Tax-Related Advice
Another situation where financial advice may be deductible is when it involves tax-related advice. Section 25-5 of the Income Tax Assessment Act allows deductions for expenses incurred in getting tax advice.
This can include services related to interpreting or applying tax laws to your personal or business situation. If part of your financial advice involves tax planning, ensuring you are compliant with tax laws, or maximising your tax efficiency, then that portion of the fees may be deductible.
Importance of Itemised Invoices
It's important to note that the ATO requires detailed and itemised tax invoices to differentiate between deductible and non-deductible advice.
For instance, if a financial planner provides both investment management and tax-related advice, the fees must be clearly separated on the invoice to claim a deduction on the appropriate portion.
Without itemised invoices, it can be difficult for you or your accountant to determine which fees are deductible. This is why it is recommended to always request an itemised invoice from your financial planner, outlining the different types of advice provided.
Conclusion
In summary, while financial planner fees for establishing an investment are typically non-deductible, fees for ongoing investment management or tax-related advice may qualify for a deduction.
It is essential to keep detailed, itemised records of the advice provided and consult with your accountant to ensure you are correctly assessing the tax-deductibility of these expenses.
Every situation is unique, so seeking professional advice will give you the best outcome.
I hope this helps answer your question, but if you need any further clarification, please don't hesitate to reach out.
All the best,
Leandro
While the Adviser Ratings Website facilitates the question and answer functionality, all such communications are between users and authorised financial advisers, of which Adviser Ratings has no affiliation. Adviser Ratings is not the advice provider and does not provide financial product advice and only provides information that is general in nature.
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