The government needs to “urgently consult” on changes to RITC eligibility, which the FSC says will cost Australians $250 million in tax on financial advice.
In December last year, the Australian Taxation Office (ATO) announced that on 1 July 2024, super funds and IDPS operators will no longer be able to claim a Reduced Input Tax Credit (RITC) on behalf of members for advice fees collected by the platform.
Speaking on 2GB on Tuesday night, Financial Services Council (FSC) chief executive Blake Briggs said it is an “unbelievable back slip” from the ATO.
“We have a government at the moment, with Stephen Jones as the relevant minister, championing affordable and accessible advice and reforms to try to bring down the cost of advice,” Briggs said.
“But at the same time, the ATO has made a very unexpected change in the treatment of GST on financial advice, which will immediately increase the tax burden when it takes effect in just a couple of weeks’ time.
“Our forecast is that this will cost Australians $250 million more in tax on financial advice, which just makes it unaffordable, it’s quite extraordinary.”
The industry practice based on ATO rulings has long been that super funds could claim an input tax credit on the cost of the GST that was paid on financial advice services on behalf of their members, which Briggs noted “directly lowered the tax burden on the advice that Australian consumers were receiving”.
However, the RITC removal will see the current 75 per cent discount on GST to clients advice fees removed, raising the GST charged from 2.5 per cent to 10 per cent and resulting in a 7.3 per cent increase on total fees charged to the client.
“Quite extraordinarily just before Christmas, literally late December, the ATO brought out an unexpected change of position that within only a matter of weeks, this would change,” Briggs said.
“Now, we’ve successfully pushed back for a slightly later start date to July this year. But that was only in order to allow the government time to look at legislative change. Unfortunately, there hasn’t been any real consideration of this by the Assistant Treasurer. So we’re calling for him to urgently consult on how to fix this, so the Australians don’t end up paying more tax.”
He added that while the FSC is pushing for a further delay from the ATO, the main goal has to be a legislative fix to “address this slightly perverse outcome”.
“There is a solution there, and I think it’s one that upholds longstanding industry practice that’s in the best interest of advice consumers, but we need the government to act,” Briggs said.
The changes also fly in the face of the government’s “stated policy objective”, he said, with the RITC changes combining with other measures to make advice less affordable.
“On top of a range of other things that have happened this year in the sector such as ASIC levies, the commencement of the Compensation Scheme of Last Resort, with delays in getting some of those reforms we’ve talked about through Parliament, all of these together, it’s just contradicting government policy and headed the wrong way,” Briggs said.
“For those Australian consumers getting advice, and then paying for that out of their superannuation savings, what that will mean is the advice costs more because of this increased tax component, and that comes out of people’s superannuation and retirement savings. So people are increasingly that little bit poorer. And it directly contradicts the whole purpose of having superannuation in place in the first place.”
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