New tax advice rules spark PI scare
The TASA requirement that financial advisers who provide "tax advice" register with the Tax Practitioners Board (TPB) from July may have significant implications for professional indemnity insurance premiums.
Michael Pinn, director of Sydney-based licensee Pinn Deavin, has been in consultation with the TPB on behalf of the Association of Independently Owned Financial Professionals for several months and says advisers and practice principals need to be aware of the insurance ramifications of the changes outlined in the Tax Agent Services Act.
“From 1 July you can register on a transitional basis, but at your next PI renewal – which might be 1 July – you need to make sure your insurance on renewal includes tax advice or you will find yourself in breach,” Mr Pinn told ifa. “[Financial advisers'] PI policies generally exclude tax advice.”
A CPA and registered tax agent himself, Mr Pinn said that while the response of PI insurers to the new TPB registration requirements will not be known “until we get a premium”, he would be “shocked if they did not bump up the premiums”, given the historical reactions of PI insurers to changes in the financial advice market.
The TPB’s definition of tax advice – as alluded to in a YouTube video released by the board last week – would see most mainstream financial and risk advisers required to register at tax agents.
“The TPB’s position is that if you make comments about tax you need to be registered, so every risk adviser who makes statements about an insurance bond providing tax paid income, or income replacement insurance premium being tax-deductible, is giving ‘tax advice’ according to the TPB,” Mr Pinn said.
“Every [authorised representative] out there that is writing insurance, especially income replacement insurance, is effectively giving tax advice under the TPB definition.”
Mr Pinn, whose business includes both a financial planning and an accounting arm, said the TPB’s definition may cause problems for advisers seeking to comply with the best interest duty.
“If you don’t provide basic information to your client about tax deductibility and tax assessment, then you’re not giving appropriate advice,” he said. “It’s like an estate agent not telling you about stamp duty.”
While the TPB is a “well-run organisation”, it has a long history of working with tax agents and may not fully understand the nature of retail financial advice, Mr Pinn suggested, adding that the accounting industry bodies have been strongly supportive of the move to make financial planners register with the TPB since the announcement of the removal of the accountant’s exemption.
“There’s a real politics game here,” Mr Pinn said. “It is so obvious that this is being driven by disgruntled accountants.”
ASIC relieves AFSLs from compliance scheme
The corporate regulator has assured advice licensees that they won’t be breach...
MLC sees silver lining in Hayne recommendations
The wealth giant has acknowledged the significant challenges facing the financia...
FASEA standard blasted as ‘reckless’, ‘ill-considered’
A change from the Financial Adviser Standards and Ethics Authority to its code o...