Benefits outweigh costs of tax free advice: IPA
Tax regulations which prevent consumers from deducting service fees associated with the preparation of a financial plan should be reformed, according to the Institute of Public Accountants (IPA).
In its pre-Budget submission the IPA said "there is a strong case to support the tax deductibility of all the costs of financial planning advice", adding that the current system "discourages many Australians form pursuing important strategic advice".
"Currently, a fee for service arrangement for the preparation of an initial financial plan is not tax deductible under section 8-1 of the ITAA 1997 as it is not considered to be an expense incurred in producing assessable income," the IPA said.
"However, ATO guidance in Taxation Ruling IT39 states that where expenditure is incurred in ‘servicing an investment portfolio' it is incurred in relation to the management of income-producing investments, has an intrinsic revenue character and is therefore deductible."
The IPA said the need for reform was of heightened importance, with the Future of Financial Advice reforms seeing the advice industry transition from a commission-based structure to a fee-for service remuneration regime, adding the the fall in revenue derived from taxation of financial advice would be off-set by cost savings of having fewer Australians relying on the Age Pension in years to come.
"Tax deductibility carries a cost which will be significantly outweighed by the longer-term benefits of the assistance provided to taxpayers as they plan for independent retirement as well as improving financial literacy," the Institute said.
"The cost to government will not be significant as these costs were previously mainly deductible when planners were remunerated via commissions."
AUTHOR
Nicholas O'Donoghue
Recommended for you
Sequoia Financial Group has declined by five financial advisers in the past week, four of whom have opened up a new AFSL, according to Wealth Data.
Insignia Financial chief executive Scott Hartley has detailed whether the firm will be selecting an exclusive bidder for the second phase of due diligence as it awaits revised bids from three private equity players.
Insignia Financial has reported a statutory net loss after tax of $17 million in its first half results, although the firm has noted cost optimisation means this is an improvement from a $50 million loss last year.
With alternative funds being described as “impossible” for fund managers to target towards advisers without the support of BDMs for education, Money Management explores the evolving nature of the distribution role.
