A number of industry bodies have used their submissions to the Federal Budget to call for financial advice to be made tax deductible.
The Financial Planning Association (FPA) argued that there is an anomaly around the tax deductibility of financial planning fees, which means the method the consumer chooses to pay for their financial advice results in different taxation treatments for no apparent public benefit. Currently, a fee for service arrangement for the preparation of an initial financial plan is not tax deductible.
‘The inability to claim a tax deduction for the fees associated with an initial financial plan acts as a disincentive for people to take the first step towards organising their finances on a strategic basis. This has widespread cost implications, both for the individuals and the community as a whole. Encouraging the use of professional financial planning advice results in a more financially literate community, and benefits society overall,’ the FPA said in its submission.
‘The precedent of tax deductibility of professional fees is already set and allows consumers to deduct fees paid to registered tax agents, BAS agents and lawyers.’
The FPA said that while allowing a tax deduction on initial advice fees would involve some additional costs to Government, these would be significantly outweighed by the long-term benefits, such as freeing up expenditure through reduced debt, and a lessening of demands on welfare through improved insurance protection.
In addition, the FPA also suggested the following alternative payment options to increase the take-up of financial advice:
- Allow consumers to deduct advice fees from their superannuation account
- Utilise salary sacrifice arrangements to pay for advice
- Direct a small portion of the Government co-contribution scheme towards advice on superannuation methods
The Institute of Public Accountants (IPA) also used its budget submission to argue for the tax deductibility of financial advice, saying the changes introduced by the Future of Financial Advice (FoFA) reforms would mean the cost to Government will not be significant.
‘When advisers were paid via commissions these costs were deductible as they were paid by the product provider. Under the new remuneration model, end users must pay advisers directly so the government will be better off financially under the new arrangements if it continues to disallow certain costs associated with the provision of financial advice,’ the IPA said.
IPA CEO, Andrew Conway, added: “The tax deductibility of financial advice would considerably increase financial literacy, boost affordability and accessibility and reduce demands on public funding. It would encourage a larger numbers of Australians to seek financial advice.”
Tax deductible advice fees were also named among the Financial Services Council’s 2014 Budget recommendations (click here), which focused largely on increasing the take-up of disability insurance. However, riskinfo understands the likelihood of the implementation of a tax deduction for financial advice, at least in the first term of the Abbot Coalition Government, is very low.
