Making fees paid for financial advice received tax deductible would seem, on the surface at least, to be a fairly sensible thing for a government to do.
After all, better advice will lead to better management of personal finances, which in turn should mean fewer people relying on government support as a result of strained financial circumstances.
But governments are not always sensible. Take health, for instance.
One of the oft-repeated pieces of advice we receive is that our oral health plays a very important role in our overall health. Strong teeth and healthy gums provide us with a strong base for our general wellbeing.
If that is indeed so, why is basic dental care not covered by Medicare? Surely the cost of covering oral health would be recovered many times over as a result of reducing the burden on the healthcare system later on.
And yet, the government does not provide dental care rebates for most Australians.
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It’s a similar story when it comes to our financial health. However, recent advice from the Australian Tax Office (ATO) suggests there could soon be changes.
Last month, after two years of advocacy by, and engagement with, the Financial Planning Association of Australia (FPA), the ATO announced a decision to update its guidance on the tax deductibility of financial advice fees.
The FPA’s CEO, Sarah Abood, says this will open the door for more ordinary Australians to seek and receive financial advice, but the FPA will continue to advocate for further change.
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“The FPA has long been advocating for broad tax deductibility of both initial and ongoing financial advice fees,” she said.
“One of the quickest and easiest ways to make quality financial advice more affordable for consumers, would be to make it tax-deductible in full.”
Ms Abood says the ATO’s December announcement goes at least some way towards achieving that outcome.
“The ATO’s commitment to issue a new Tax Determination – indicating its willingness to modernise its long-standing view on this important issue – will provide more certainty to our members and the broader community of Australians who benefit from comprehensive financial advice.”
According to the FPA, the current tax structure is flawed when it comes to the timing of financial advice. For financial advice fees to be deductible, its outcome must include an income -producing portfolio.
Read: Could simple ‘tweak’ to financial advice have devastating consequences?
On the timing of advice, Abood said the current view is financial advice happens “too early in time” to be considered part of the income-producing process.
“However in our view, it’s the character of advice that should determine its tax treatment, rather than purely the timing of the fee paid,” she said.
So, for those of you considering seeking advice in getting your financial affairs in order, 2023 could be the ideal time to do so. Just how ideal will become clearer with the release of the new version of TD95/60, due in May.
Have you been putting off seeking financial advice? Will the ATO’s decision change your approach? Why not share your thoughts in the comments section below?