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.”
Maybe one way of alleviating the problem would be the signing of an undertaking by investors not to sue in the event of a failure. Investors are not obliged to accept an Advisers recommendations ergo acceptance is at the behest of investor NOT adviser. I’m not in love with advisers but fair-is-fair.
P I covers advice as given now except we state we are NOT tax advisers. In theory, the same advice will be given except we give a different declaration. If the advice is still specific there should be no change to P I. The issue is we as planners do not complete the whole tax return and hence the advice will always be subject to question as other factors will increase or decrease the actual tax liability. Therefore the advice will always ONLY be a guide to consider in the overall result- clearly this aspect has been missed or are we to be treated as “”full”” tax agents. Bet some chasers are waiting for this one.