In its submission to the Quality of Advice Review (QAR), BT Financial Group has argued that financial advice fees must be tax-deductible.
While BT acknowledged this would require legislative change, it argued that advised clients are in a better financial position than those who chose not to obtain financial advice.
“Given accessibility and affordability of financial advice is, and will remain, an issue for many Australians, and arguably is out of reach for those who would benefit most from it, BT believes the focus of the review and any recommendations made should be focussed on the issues of accessibility and affordability, without any detriment to the advances that have been made to the increased quality of the advice that exists today,” the wealth manager said.
Advisers have long supported the argument that pushing for some level of tax deductibility on advice fees would be positive for both the advice sector and consumers.
Bodies unite on tax-deductible advice
Back in 2020, in its Consumer Advice Referendum campaign, the AIOFP made tax-deductible advice fees a key issue, encouraging advisers to get their clients to write to their MP and agitate for better business conditions in the advice space, in order to reduce the cost of getting a financial plan.
The body stressed this issue again in its latest QAR submission, noting that it still believes financial advice should be tax-deductible to help with affordability.
“This step would allow financial advice to be packaged without the impost of fringe benefits tax due to the application of the ‘otherwise deductible’ rule, thus allowing advice to effectively be paid for in instalments from their salary package,” the AIOFP further explained.
Similarly, in its own submission, the Financial Planning Association (FPA) said that tax deductibility of initial financial advice fees and additional certainty around the deductibility of ongoing advice fees would offset a proportion of the price differential between registered relevant providers and non-relevant providers and unregulated advice providers by reducing the cost of advice for consumers.
“All financial advice should have tax deductible status to help make financial advice accessible and affordable for all Australians. This should be regardless of the stage in the financial advice process it is provided, and whether it directly relates to the creation of investment income,” the FPA said.
Currently, tax treatments of financial advice occur in numerous ways, dependent on the nature of the advice sought and when it is provided. For example, a fee-for-service arrangement in the preparation of an initial financial plan is not tax-deductible. However, ongoing advice fees are treated as tax-deductible as they are deemed to have been incurred in the course of gaining or producing assessable income.
As such, the FPA has argued that “treating the creation of an initial financial plan in a different fashion to that of ongoing advice provides a disincentive for Australians to seek ‘episodic’ financial advice which will assist them to actively plan, save and secure their financial future”.
“It also acts as a further barrier for Australians who have not previously sought or received financial advice.
“Increasing the accessibility and affordability of financial advice for all Australians, particularly for those on lower incomes, will provide for a more financially competent community, with Australians becoming more financially literate and better able to support themselves, especially during retirement.”
Funny that the AIOFP repeatedly defends the industry yet the FPA seems more interested in the status quo and the betterment of their big business donors.
In theory, having financial adviser fees tax deductible is reasonable. However, why should fees be tax deductible when a client is advised to put their investments into products owned by the institution the adviser works for?
We as an industry are asking for a hundred things and they are all taking away from each other. Maybe we should let go of all the small wins and just get the SOA shrunk down to a reasonable and user-friendly and useful document that takes half as long to produce and a quarter of the time to read and is 100 x more easily understood by a layperson, which would significantly reduce the end user cost anyways.
Watch the cost of advice increase by opportunistic businesses.
“However, ongoing advice fees are treated as tax-deductible as they are deemed to have been incurred in the course of gaining or producing assessable income.”
Most of my clients don’t earn assessable income resulting from my advice, mainly because I don’t work with a lot of young accumulators and for anyone over 55 – super is to good to pass up. Many accountants question the deductibility and I regularly have to defend the ones that actually do generate assessable income – a blanket deduction would definitely help me provide service to younger clients who are the ones that need help the most at this point but are not presently viable clients.
All our fees should be tax deductible and I highly doubt advisers will increase their fees 37% because of it. I know in my practice, if clients could access $4,000 comprehensive advice for $2,500 out of pocket, it would open up accessibility to quality advice to so many more people and we wouldn’t have to use technicalities for ongoing fees to be considered tax deductible.
There’s a strong argument to introduce some form of tax deductibility around fees but I don’t think it needs to be for all advice. Specifically for superannuation I think would be the way to go but how do you segment the super bit from non super? It would be almost impossible. And too open for abuse by the more inventive.
And if the tax deductibility was only for up-front advice watch the change in fee structures. Up-front advice every year?
good observation. however if advice fees paid directly by a client ie not through the product or a super fund were deductible that may be a way to approach this question and move away from relying on product for fees ..
Advice in super is already tax deductable , to the super fund itself. ps not all of us are looking for loopholes, not a very nice insinuation in those comments,
FYI – Ongoing fees are generally tax deducible under current rules.
all this will do is increase the initial fee charged which in a lot of cases is outrages
Please define what an outrageous fee might look like?
What’s needed is the upcoming carves out that will be provided to Union run Super funds to be applied equally across the advice chain. Not the Ministers choice that Advice is for the Ultra wealthy and Joe Blow public seeks out a super fund.
Charging $8,000 for advice to someone earning $250,000 and telling them it costs $4,000 after tax is a small percentage of advisers. What is needed is unity in reducing bad regulations. Retirees don’t pay tax, and at the moment they’re the only ones that can afford advice.
You can’t put all retirees into the same “box”, certainly not all can afford to pay for advice.
Also if anyone thinks any government, especially a Labour one is going to allow tax deductibility for advice they are deluding themselves.
Meaningless to focus on this; most advice already is tax deductible.
Pressure on the government should focus on the ridiculous ASIC tax and coming CSOLR tax