Industry unites on tax-deductible advice

In its submission to the Quality of Advice Review (QAR), BT Financial Group has argued that financial advice fees must be tax-deductible.

While BT acknowledged this would require legislative change, it argued that advised clients are in a better financial position than those who chose not to obtain financial advice.  

“Given accessibility and affordability of financial advice is, and will remain, an issue for many Australians, and arguably is out of reach for those who would benefit most from it, BT believes the focus of the review and any recommendations made should be focussed on the issues of accessibility and affordability, without any detriment to the advances that have been made to the increased quality of the advice that exists today,” the wealth manager said. 

Advisers have long supported the argument that pushing for some level of tax deductibility on advice fees would be positive for both the advice sector and consumers. 

Bodies unite on tax-deductible advice

Back in 2020, in its Consumer Advice Referendum campaign, the AIOFP made tax-deductible advice fees a key issue, encouraging advisers to get their clients to write to their MP and agitate for better business conditions in the advice space, in order to reduce the cost of getting a financial plan.

The body stressed this issue again in its latest QAR submission, noting that it still believes financial advice should be tax-deductible to help with affordability.

“This step would allow financial advice to be packaged without the impost of fringe benefits tax due to the application of the ‘otherwise deductible’ rule, thus allowing advice to effectively be paid for in instalments from their salary package,” the AIOFP further explained. 

Similarly, in its own submission, the Financial Planning Association (FPA) said that tax deductibility of initial financial advice fees and additional certainty around the deductibility of ongoing advice fees would offset a proportion of the price differential between registered relevant providers and non-relevant providers and unregulated advice providers by reducing the cost of advice for consumers.

“All financial advice should have tax deductible status to help make financial advice accessible and affordable for all Australians. This should be regardless of the stage in the financial advice process it is provided, and whether it directly relates to the creation of investment income,” the FPA said.

Currently, tax treatments of financial advice occur in numerous ways, dependent on the nature of the advice sought and when it is provided. For example, a fee-for-service arrangement in the preparation of an initial financial plan is not tax-deductible. However, ongoing advice fees are treated as tax-deductible as they are deemed to have been incurred in the course of gaining or producing assessable income.

As such, the FPA has argued that “treating the creation of an initial financial plan in a different fashion to that of ongoing advice provides a disincentive for Australians to seek ‘episodic’ financial advice which will assist them to actively plan, save and secure their financial future”.

“It also acts as a further barrier for Australians who have not previously sought or received financial advice.

“Increasing the accessibility and affordability of financial advice for all Australians, particularly for those on lower incomes, will provide for a more financially competent community, with Australians becoming more financially literate and better able to support themselves, especially during retirement.”