Planners warned not to advise on tax

Financial planners will need to change the way they offer advice on tax issues as they relate to investments.

Financial planners will need to change the way they offer advice on tax issues as they relate to investments.

Speaking at the Gearing & Investment Conference in Sydney yesterday, Peter Bobbin, partner of legal firm Argyle Partnerships, says the introduction of division 115 under the Tax Act means advisers can not give tax advice unless they are registered tax agents.

“With the introduction of division 115 a major change is happening,” he said. “Planners will need to change the way they approach the delivery of advice because division 115 says you can not give tax advice unless you are a registered tax agent.”

Bobbin said that while planners may argue they do not advise on tax, many popular investment strategies have tax implications. Planners recommending these strategies could be seen to be giving tax advice.

“You might say that you don’t give tax advice — but you advise on RBLs and gearing — those strategies are about tax.”

When providing advice on tax strategies like negative gearing, Bobbin said planners must include disclaimers and those disclaimers must be phrased to include both positive and negative elements. Most importantly, he said planners must not charge a fee for the provision of tax advice.

Bobbin also said that New South Wales is the fifth most litigious region in the world and while many planners believe it is the dealer that bears the risk of litigation, action can be taken against financial planners under the duty of care provisions of the Corporations law.

“Intermediaries are vulnerable — the person, not the dealer is responsible and must compensate the client from his or her own hip pocket under section 852 of the Corporations law,” he said.