Should financial advice be tax deductible?

When you go to your accountant to have your tax return prepared you leave their office at least somewhat mollified by the knowledge that their fee is tax deductible. Should the same apply to a visit to your financial planner?

That is the proposition being put by the Federal Opposition, with the Shadow Minister for Financial Services, Superannuation and Corporate Law, Chris Pearce, suggesting one of the best incentives that can encourage people to seek financial advice is the provision of tax incentives.

Right now, as Pearce pointed out, advice is tax deductible where it is provided on an ongoing basis, however, he suggested that it also be available where it is provided upfront and as a one-off.

Pearce is right and if the Government is going to get serious about people being fully informed and capable of providing for their own retirements, it needs to place financial planning advice on the same tax plane as accountancy advice.

However, the tax treatment of financial advice represents a much more complex issue than the tax treatment of accountancy advice, especially in circumstances where the Government is at the same time looking to make advice cheaper and more accessible via conduits such as superannuation funds or their contracted administrators.

The question arises, therefore, whether limited advice provided by a superannuation fund should be deductible (hardly likely) or whether a fee paid to a salaried financial adviser by a superannuation fund on behalf of a member should in some way be deductible.

The likely corollary of extending the tax-deductibility of financial advice is that larger, though not excessive numbers of people would be inclined to seek full service advice whether directly via a licensed financial planning company or via a superannuation fund.

There would, of course, be a cost to Federal Government coffers, but it is arguable that this might be offset by people making better choices, thereby reducing pressure on the age pension and the broader Australian social welfare system.

There are many positives associated with making financial advice tax deductible, but recent events such as the collapse of Storm Financial and the drain on tax receipts generated by the global financial crisis mean that it will not be top of mind for the Government in the May Budget.