"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:
Sam Khan
Hi Simon,
This is a great question and has been a topic of discussion in our industry for some time. Unfortunately, the answer isn’t as simple as a yes or a no.
In Australia, financial planner fees may be tax deductible if they relate to producing assessable income or managing investments. For instance, fees associated with managing a managed fund or investment property can often be claimed. However, fees for personal financial advice, such as retirement planning or budgeting, are generally not deductible. Generally, to be deductible, the fee must:
- relate to producing the client’s assessable income, and
- be paid directly by the client to the adviser or indirectly via deductions from their personal investment.
Fee deductibility is also dependent on the type of fee being paid. Generally, there are two types of fees as far as financial advice is concerned i.e., Upfront Advice fee and Review Advice Fee (previously referred to as Ongoing Advice Fee).
Upfront advice fees have generally not been tax deductible to the client. Such fees are viewed by the ATO to have been incurred too early to be expenses incurred in producing assessable income and are capital in nature. However, the new ATO tax ruling suggests both a proportion of an Initial Advice Fee where the advice specifically relates to managing tax affairs and a proportion of a Review Advice Fee for maintaining an investment portfolio and managing tax affairs may be deductible as these relate to producing the client’s assessable income. That said, fees relating to assets that do not produce assessable income for the client (such as super accumulation or pension interests) are not deductible to the client. You can refer to the ruling by clicking here.
Given the ruling, it will be necessary for your financial adviser to determine what proportion of Advice fees paid by a client relate to assessable income producing assets or the management of the clients tax affairs to calculate the deduction available. The ATO’s view in Tax Determination 2024/7 is that the deductible amount should be apportioned on a fair and reasonable basis. The client should retain evidence of the method of apportionment, otherwise the fee cannot be deducted. A financial adviser can provide an itemised invoice, a fee disclosure statement or an advice fee consent form with the:
- name of the financial adviser
- expense amount
- explanation of the advice provided
- date the expense was incurred, and
- date of invoice.
This will allow the fee to be proportioned based on its tax deductibility. For example, if an advice document covers Retirement advice, Investment and Risk Management (life insurance) advice, advice relating to investment advice and risk management specific to income protection only will be tax deductible.
It's always a good idea to consult with a tax professional or financial adviser to understand your specific situation and ensure you're meeting all requirements.
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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