ATO Clarifies Tax Deductibility of Financial Advice Fees

The Australian Taxation Office (ATO) has issued new guidance (TD 2024/7) on the tax deductibility of financial advice fees. While the ATO's overall stance remains unchanged, this determination provides greater clarity on the deductibility of both upfront and ongoing fees.

Key Points

Some important aspects of this determination include:

• Financial advice that includes tax-related guidance may be deductible, provided it is given by a qualified tax professional.
• Upfront fees for initial advice, such as establishing a financial plan or structuring investments, are generally considered capital expenses and are therefore not deductible. However, if the advice pertains to managing income-generating investments or tax obligations, it may qualify for a deduction.
• Ongoing financial advice fees may be deductible if they are directly related to income-generating activities.
• To be deductible, the fees must be directly linked to earning or producing assessable income. If only part of the advice is related to income production, only that portion of the fee may be claimed.

In essence, financial advice fees must have a direct connection to assessable income in order to be deductible. For instance, fees incurred for managing existing income-producing investments may be deductible, whereas fees for structuring investments or developing a financial plan are generally not. Understanding the distinction between capital expenses and income-related expenses is essential to ensuring tax deductions are applied correctly.

Exclusions

This determination does not apply to individuals operating an investment business or to financial advice fees paid from a superannuation fund.

Why This Matters

This updated guidance helps taxpayers better understand which financial advice fees qualify for deductions, making it easier to distinguish deductible expenses from non-deductible ones.

To ensure compliance with ATO requirements and maximise available deductions, it is advisable to work with a qualified accountant or financial adviser to accurately categorise financial advice expenses.