On 25 September 2024, the Australian Taxation Office (“ATO”) published TD 2024/7 Income tax: deductions for financial advice fees paid by individuals who are not carrying on an investment business (“Determination”). The Determination sets out the circumstances in which an individual is entitled to claim financial advice fees as an income tax deduction. Importantly, the Determination does not consider circumstances where fees are paid out of an individual’s superannuation account.
An individual is entitled to claim financial advice fees as an income tax deduction if the fees satisfy the requirements in either section 8-1 (general deductions) or section 25-5 (tax-related expenses) of the Income Tax Assessment Act 1997 (Cth) (“ITAA97”). Whether a particular fee satisfies the requirements of one or both of these provisions is a question of fact to be answered in light of all relevant circumstances.
Relevantly, the Determination:
provides guidance on the deductibility of particular kinds of financial advice fees under section 8-1 of the ITAA97 (see below); and
clarifies that the ATO considers ‘tax (financial) advice’ to be included in the meaning of ‘tax affairs’ as defined in section 995-1(1) of the ITAA97.
Deductibility of particular kinds of financial advice fees under section 8-1 of the ITAA97
Whilst advisers and their clients are entitled to rely upon the guidance provided in the Determination, the ATO has not provided a one-size-fits-all approach to deductibility. It is incumbent on advisers and their clients to assess whether (and, if so, how much of) each advice fee is deductible in the circumstances. In some cases, professional advice from a qualified accountant may be necessary.
Advice Fee | Deductible? | Why? |
Fees for advice on a new investment. | No | Such fees are an expense associated with putting an income-earning investment in place and are considered to be either capital or of a capital nature. |
Fees for advice from a client’s existing adviser on how to invest additional funds to grow their investment portfolio. | No | Such fees are an expense associated with putting an income-earning investment in place and are considered to be either capital or of a capital nature. |
Fees for advice incurred on a regular or recurrent basis for an existing or ongoing income-producing investment (e.g. portfolio rebalancing advice). | Yes | Such fees are incurred in the course of gaining or producing assessable income from holding the investments. |
Fees for advice on insurance products. | Yes, but only if the premium for the insurance product is deductible | Such fees are sufficiently connected to gaining or producing assessable income. |
Fees for advice on household budgeting. | No | Such fees are private or domestic in nature. |
If you have any questions in relation to the above, please get in touch with Cowell Clarke’s Financial Services Team at Compliance@CowellClarke.com.au.
This publication has been prepared for general guidance on matters of interest only and does not constitute professional legal advice. You should not act upon the information contained in this publication without obtaining specific professional legal advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication and to the extent permitted by law, Cowell Clarke does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting or refraining to act in relation on the information contained in this publication or for any decision based on it.