FAAA and accounting bodies team up for advice deductibility guidance

The Financial Advice Association Australia (FAAA) has released its guide for financial advisers and accountants to explain how the professions can work together to claim a tax deduction for clients’ financial advice fees.

Developed in consultation with Chartered Accountants Australia and New Zealand (CA ANZ), CPA Australia, and the Institute of Public Accountants (IPA), the guidance aims to provide insight into how the ATO’s Tax Determination TD 2024/7, released in September 2024, can be practically implemented.

The Tax Office had initially released a draft determination to clarify the rules around deductibility of financial advice fees in December 2023 and, while there are some changes between the two versions, advisers have been able to rely on the determination for the last 18 months.

However, many advice firms have not put a system in place to take advantage of the new determination as they were not fully confident in their ability to accurately adhere to the rules.

According to FAAA chief executive Sarah Abood, that’s where this new guidance, which has been ratified by the accounting associations, comes into play.

“The implications of the updated ATO guidance are important for both financial advisers and accountants. We have worked together with the accounting associations so that the guidance is practical and consistent for both,” Abood said.

“The publication of this guide follows more than six years of advocacy from the FAAA to encourage the ATO to update its guidance. The ability for taxpayers to legitimately claim a portion of the initial advice fee for financial advice clients is new and is live now. The guide also provides clarity regarding the claiming of ongoing fees.

“Advisers can now support their clients to claim a legitimate tax deduction for financial advice fees with confidence.”

The guide includes the legislative background and definitions of tax (financial) advice and taxation law, while also outlining three potential methodologies for apportioning fees.

Additionally, it provides examples, statement of advice text and fee summary templates for active use.

Tony Negline, superannuation and financial services leader at CA ANZ, said: “We are proud to collaborate with the FAAA, CPA Australia and IPA on this combined industry guide to help both financial advisers and the accounting community to understand the practical implications of the tax deductibility of financial advice fees, which will ultimately benefit our clients.”

CPA Australia superannuation lead Richard Webb added that the association is looking forward to “further explaining the changes and working with our members and the financial advice community to collaborate and embed the use of this guide”.

Tony Greco, senior tax adviser at IPA, said: “We hope the guide is helpful for the financial services community, in conjunction with our members acting as the client’s tax adviser, to have real clarity of the approach to apportionment and deductibility more generally.”

Speaking on the ifa Show earlier last year, Conrad Travers, director and principal consultant at Tangelo Advice Consulting, said misunderstanding within the profession has led some to believe that upfront fees are not tax deductible under any circumstances, stopping advisers from taking advantage of the recent change.

“I would say be careful who you listen to at the moment, because I’ve seen some advice from people who may not have read the determination properly and they’ve seen the headline that’s not deductible under 8-1 but haven’t gone to the next level of detail to understand that the changes are applicable under 25-5,” Travers said.

“So, the first thing I would say is, if you want to do something in this space, make sure you read it.”

Travers also signalled that this FAAA guidance was imminent and recommended that those who are hesitant or unsure could be better off waiting as they will still be able to reap the benefits for clients down the track.

“I think the majority of financial advice businesses, if they’re wanting some practical guidance, could just wait for the FAAA guidance in the new year because that will explain to them exactly what they need to do to implement it in their practice,” he said.