‘Too good to miss’: FAAA encouraging advisers to take advantage of tax opportunity

Following the release of joint-association guidance on the tax deductibility of financial advice fees last week, Financial Advice Association Australia (FAAA) senior manager policy and advocacy David Barrett has said it presents an opportunity for advisers that is simply “too good to miss”.

While advisers will still need to do the work to ensure they are following the guidance provided, Barrett suggested in a webinar on Tuesday that this will make advice more affordable for clients.

“It’s a bit of a free kick almost for you in that respect,” Barrett said. “But the onus is on you as an adviser to do this apportionment and ensure that you have some basis for that apportionment.

“It’s not easy. It is going to take a little bit of time. It’s a transition period that you’ll go through, and with time, you’ll become a bit more comfortable with it.”

When it comes to utilising the tax deductions, one of the concerns that naturally comes up is the potential for backlash from the Australian Taxation Office (ATO), however, as long as advisers can back up their decision, Barrett sees no reason why there should be an issue.

“So, technically speaking, if you look at the tax determination, the Tax Office’s view is, if the client has that basis of apportionment from the financial adviser, that’s enough to substantiate their claim,” he said.

“There’s no suggestion in the tax determination around compliance resources being utilised to understand what’s gone into that apportionment on the part of the adviser.”

He added: “There will be some personal judgement, professional judgment involved in that. Again, don’t be afraid of that.”

Although advisers should feel confident to utilise this opportunity, Barrett warned that those who might try to abuse this power should expect the ATO to take action against them.

“If you, for example, were claiming 100 per cent of your advice fees as a deduction for every client, every piece of advice you give, you would probably expect the Tax Office to come knocking on your door at some stage around that, so I think some commonsense around this,” he said.

“And protecting yourself is probably the most important part of this. If the tax office does come knocking, can you justify your apportionment?

“Now, it’s not a precise science that apportionment. It’s going to be different from advisor to advisor, but as long as you can put something in front of the tax office that justifies the number that you’ve given to the client, then I think you’re going to be OK.”

Given that this is a relatively new opportunity for advisers, with the ATO’s final determination (TD 2024/07) regarding the deductibility of advice fees only being released in September, Barrett said the guidance around this will continue to evolve as it is utilised more.

“Rest assured, this is an area where I see a lot of development in future, months and years, even from the industry’s understanding of this, from the Tax Office’s understanding of it, we’ll endeavour to keep you informed,” he said.

“The guidance document that we produced, we see that as being dynamic. It will change over time as our understanding improves around this.”