Cost of RITC changes ‘flying under the radar’: AIOFP

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 the upcoming changes at the FAAA Roadshow in Sydney last week, FAAA general manager policy, advocacy and standards Phil Anderson said the current fee structure has allowed clients to reduce costs but “now that’s going to disappear; the ATO wants to pull it”.

“We’ve certainly been advocating on that issue,” he added.

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.

Importantly, there will be no change in the fees that advisers charge their clients, only in the amount they actually have to pay.

In a letter to its members, Association of Independently Owned Financial Professionals (AIOFP) executive director Peter Johnston urged advisers to discuss the upcoming rate changes with their clients and encouraged them to voice their displeasure with the government for increasing the cost of advice.

“This is one of those tax hikes that quietly flies under the radar … but we need to expose it to consumers, starting with your clients,” Johnston said.

“This is yet again another decision advisers will have to make, as whether this increased cost is absorbed in the business or passed onto clients.

“The only way the advice community will have any hope of amending these never-ending compliance cost increases is leading into the next election with educated clients who are communicating and voicing their concerns with their local federal member.”

As Australia approaches the next federal election, Johnston said politicians will become more incentivised to engage the demands of their constituents in an effort to keep their seat in Parliament, giving Australians a greater opportunity to seek change.

“The political landscape changed 20 years ago this year when PM John Howard cancelled the Pension Fund for Politicians, leaving the vast majority exposed to the ‘dole queue’ if they do not retain their seat,” he said.

“A few months before the election is the time to seriously seek change, their livelihood is on the line.

“With an early election highly unlikely, your clients should be engaged with these realities over the next six months in preparation for the intense political posturing commencing in February 2025.”

When approaching the conversation with clients, Johnston said advisers need to be clear in their intentions, focusing on the need to voice their concerns to politicians rather than attempting to sway their future voting decisions.

“It should be clearly understood that you are not asking your client to change their voting preference at the next election, understandably most get offended with that approach,” he said.

“It is all about educating them on why your fees have been [or about to be] increasing and how they can help to get the message to Canberra, they are unhappy about the situation. It is a form of inferred intimidation.”