Many clients are unsure whether the services of their financial advisor are tax-deductible. As Australians, certainly, you are concerned about are financial planning fees tax deductible in Australia. Now we are going to discuss all the aspects as well as try to find out the solutions . In general, if the fees are related to advise that leads to or is directly associated with a specific investment that creates assessable income, you can deduct the fees.
- Financial advice in general
- Creating a financial plan
- First-time investor guidance
- Fees in advance
- Advice on pension income that isn’t taxable
TD 95/60
Income tax: are fees paid for obtaining investment advice an allowable deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for taxpayers who are not carrying on an investment business?
This is because the fees shown above have not yet been added to your taxable income (annual taxable income). These fees may be tax-deductible if you obtain advice to adjust an existing investment portfolio that generates taxable revenue as part of your ongoing portfolio management. The same is true for recurring advising fees or retainers, especially if the advice is related to generating revenue.
If you receive and pay for advice in connection with an investment loan, and the loan’s aim was to create taxable income, the expenses can be deducted over the shorter of five years or the loan’s duration.
In general, you can claim a tax deduction for investment advising expenses if the charges are attributable to advice offered that leads to, or is directly associated with, a specific investment that generates assessable income.
Here’s how to figure out which fees are tax-deductible:
- Creating a loan proposal
- Fees for arranging a loan are tax-deductible depending on the purpose of the loan.
Since you are not making any revenue from the property, the fees for obtaining a loan on your private residence – the house you live in – will not be tax-deductible. However, if the loan is for an investment property, you can claim a deduction for obtaining the loan. The deduction is usually spread out throughout the life of the loan or five years, whichever comes first. However, in other cases, where the total borrowing expenses in a given year are less than $100, the entire amount is deductible in that year.
Some commonly overlooked tax deductions to keep in mind. We suggest you learn more about how might taxes have an impact on your financial plan.
Contents
Are financial planning fees tax deductible in Australia ?
Expenses for a home office:
Home office expenses should be on your radar now that the majority of people work from home in some way. From 1 March 2020 to 30 June 2021, the ATO will let you claim a rate of 80 cents per hour worked for all additional running expenses (including phone and internet) to make it easier for persons to claim working from home deductions due to COVID-19.
Premiums for income protection:
Premiums for income protection are usually tax-deductible in the year they are paid. Following the conclusion of the fiscal year, you should receive a statement detailing the amount you can claim on your tax return.
Costs of self-education:
Are you enrolled in a work-related online course or evening class? If you’re not being reimbursed by your company, these expenses are often tax-deductible. The course(s), textbooks, and even travel expenses may all be deducted. The ATO website has a comprehensive list of what you can claim.
Fees paid to Tax Advisors:
Fees paiYou can deduct the cost of preparing your tax return from your income. Just keep in mind that the fee you pay to have your tax return prepared this year (after July 1) will usually be deducted from your deductions the following year. Don’t forget to include the tax agent charge from the previous year in your tax return this year.
Many people are interested in minimizing their legal tax obligations, particularly those in the top tax bracket, where every extra dollar earned might result in a donation to the ‘taxpayer’ of up to 47 percent (plus Medicare Levy).
Getting financial counsel is also a vital step in developing a strong financial plan for investors; however, the long-term cost of financial advice can be substantial, which may explain why so many investors try to handle their own financial planning needs without seeking professional assistance. As a result, it’s critical to inform investors about how they can use their financial planning advice fees to decrease their taxes and, as a result, help with financial planning.
According to current rules, a tax deduction may be claimed on investment advising costs paid if the payments are related to advice provided which is associated with, a specific investment that generates assessable income. To put it another way, is the expenditure you incurred as a result of the process of generating greater taxable income? If this is the case, the expense of the advice is tax-deductible. The following are some examples of deductible advising fees:
- -Fees paid on a regular basis for the administration of income-producing assets such as rental properties or stock portfolios.
- Fees paid that are not tied to a specific investment creating assessable income, on the other hand, are not deductible. The following are some examples of non-deductible advice.
The fees paid, on the other hand, will not be deductible if they are not tied to a specific investment that generates assessable revenue. Non-deductible advice includes things like:
- -Fees associated with the creation of a financial plan, such as a Statement of Advice.
- Fees paid to create an investment, such as initial investment or advice fees
Because certain financial products do not generate assessable income, ongoing costs connected to the management or monitoring of superannuation assets or personal insurances may be tax-deductible to your superannuation fund.
Isn’t it possible to make consulting fees tax deductible?
Many supporters of the Financial Services Reform Act (FSRA) in the government (and opposition) would prefer a fee-for-service model rather than a commission-based model for the investing public.
Consumer groups and certain members of the Australian Securities and Investments Commission agree with this viewpoint (ASIC). Nonetheless, recent comments from the Australian Taxation Office (ATO) indicating that it will be implementing strategies to examine claims (for deductions relating to investment seminars) confirm that, at least from a tax perspective, it may not be in the client’s best interests in a financial adviser to charge fees, and that it is more tax-efficient for the client if their adviser is paid a commission.
Fee-for-service is discouraged by the system, at least according to the ATO’s perspective. But which ATO viewpoint do you subscribe to? The one said in a recent news statement, in which it stated that it will “take a hard look at claims for investing seminar expenses”?
Or it’s Tax Ruling 39 from April 1980, which said that expenses expended in “servicing” an investment portfolio were deductible? Consultations with interstate stockbrokers and attendance at interstate stock exchanges were part of this service. Or are you subject to the ATO’s December 1995 tax ruling 95/60, which states that “expenditure on drafting the plan is incidental and relevant to outlaying the price of acquiring the investment, it is sufficiently linked to the making of the investments to justify the judgment that it is “capital or capital in nature” and thus not tax-deductible?
Conclusion:
When claiming a deduction, you’ll need to keep track of most of your expenses. Keep track of your work-related and non-work-related costs in one place with the ATO app’s deductions function. It’s a quick and easy way to record data on the move, making filing your tax return a breeze. The deductions tool can be used to do the following:
-Pre-fill your tax return by importing your records.
-You can send your records to one of these addresses when you’re ready to file your tax return.
