Final determination on the tax deductibility of advice announced

The ATO's final determination confirms that financial advice fees for tax-related guidance are deductible under section 25-5 if provided by a Qualified Tax Relevant Provider (QTRP).

However, it maintains that initial advice fees are considered capital expenses and are not deductible, while ongoing financial advice fees remain deductible.

In response to the ATO’s announcement, the Financial Advice Association of Australia (FAAA) said it is a welcome conclusion to the matter, which commenced in early 2019.

FAAA CEO, Sarah Abood, said that FAAA will now be working on providing members with guidance on how to implement this tax determination.

“We want to thank the ATO for bringing this matter to a conclusion,” Abood said.

“The confirmation that initial advice related to tax is deductible, when provided by a QTRP, is a big improvement over the original TD, which did not support deductions for upfront advice to any extent.”

In the FAAA’s most recent consultations, it asked the ATO to reconsider the deductibility of upfront fees under section 8-1 for other types of advice as well, particularly for clients with pre-existing investments.

“The ATO has not agreed to this. However we are very happy after five years to now have clarity with the final TD 2024/7,” Abood said.

“With the added clarity surrounding deductions under section 25-5, we believe a significant portion of a typical advice fee will be deductible for the clients of many advisers and practices. Increased deductibility of advice fees should help make advice more affordable for many Australians.

“We can now start the process of developing clear guidance for our members on the ATO’s view and how to engage with their clients and accountants on this.”

The FAAA will provide guidance to support the ATO’s revised guidance with explanation, interpretation and practical support in early 2025.