Rethinking billing models for maximum tax deductibility

On 26 May, the Financial Advice Association Australia (FAAA) released its guide – developed in conjunction with Chartered Accountants Australia and New Zealand (CA ANZ), CPA Australia, and the Institute of Public Accountants (IPA) – for advisers and accountants regarding how clients can claim tax deductions on their financial advice fees.

Based on the Australian Taxation Office (ATO) final determination (TD 2024/7) released in September 2024, advisers and accountants now have updated guidance to help them determine what can be claimed under tax deductions and how to determine the correct apportionment.

Speaking on a webinar off the back of this guidance, FAAA senior manager policy and advocacy David Barrett suggested that advisers looking to maximise the tax-deductibility of fees may consider changing their charging model.

“Fees paid from super won’t end up with a deduction for the individual themselves, because they’re not actually incurring the expense on personal account,” Barrett said.

“So, this, I think, will lead some advisers to rethink how they’re billing their clients for their advice fees. In the past, it might have been the case that it was easy to simply bill the self-managed super fund for the advice and it was all done and dusted from there.”

Adding to this, Tangelo Advice Consulting director and principal consultant Conrad Travers said advisers shouldn’t change their pricing models just because of the new tax opportunities.

“If you are already moving away from fees coming from superannuation and/or moving away from percentage-based fees to flat dollar charged outside of super, either directly from the client’s bank account or through master trust, wrap or IDPS deductions, this would further support that,” Travers said on the webinar.

“It also solves an issue around sole purpose tests and is a bit cleaner as well. So, there are some of those other business considerations to think through.”

However, when it comes to charging model considerations, Barrett suggested there are still some areas where a deeper understanding is needed, particularly when it comes to whether or not they should continue paying for advice through super.

“I think the advent of a higher level of deductibility might result in some advisers rethinking how they bill, what they bill for to the super fund versus the individual, to the extent that the advice is related to fees paid by the member about advice in the context of their capacity as a member, then that would be potentially deductible to them if they’re paying that advice fee personally,” Barrett said.

“Advice that’s given to the individual as the trustee or the director of a corporate trustee of a self-managed super fund related to the operation of the self-managed super fund is probably an expense of the fund and should be paid by the fund.

“So, I think a lot more forethought will go into well, what is this advice about? Is it about the member and their membership in the fund and how they manage their own membership, and hence it could be deductible if it was paid by the member versus interest as a trustee.”

When it comes to dealing with a client who is also a trustee, Barrett said the tax deductibility question gets even more complicated, though there is still room for them to benefit.

“I would think there’s some potential deductibility in that to the extent that you’re advising an individual about their obligations under a law as a trustee or director of a corporate trustee, then that would be potentially deductible under 25-5 as well,” he said.

“So, that’s not been really explored yet, and we won’t go there. We’ll assume not at this stage, but I think there is some possibility of deductibility even in that context as well.”