Soft dollar double whammy
Financial planners who disclose soft dollar payments under a new industry code of practice could be hit with a hefty tax bill.
Money Management has learnt the Australian Taxation Office (ATO) is preparing to target a new public register where financial planners are obliged to disclose any soft dollar payments they receive from January 1, 2005.
The tax office did not comment on the crackdown when contacted last week.
However, it is understood the ATO has prepared a paper on how it plans to tax soft dollar remuneration.
The tax office has also held high-level discussions with both the Financial Planning Association (FPA) and the Investment and Financial Services Association (IFSA) on the matter.
The new industry code of practice, released jointly by IFSA and the FPA in July, requires members of both groups to disclose any soft dollar forms of remuneration worth more than $300 on the public register.
If the ATO pushes ahead with the plans to monitor the register, planners who are self-employed could attract GST and possibly income tax on any payments they disclose.
If financial planners are employees, there could be Fringe Benefit Tax implications for their employers.
IFSA chief executive officer Richard Gilbert told Money Management the association was still in negotiations with the ATO over what types of soft dollar payments could be targeted.
It is hoped that not all items disclosed on the register will be subject to tax, he says.
“A cup of coffee is clearly not soft dollar, whereas regular bonuses do fall into this category. But what falls in between is what we are in discussion about,” Gilbert says.
The new code of practice was developed by IFSA and the FPA to counter intense public criticism over soft dollar payments in the financial planning industry.
As well as disclosing payments on the register, financial planners have also been banned completely from accepting some forms of soft dollar remuneration, including free travel and accommodation to conferences, that is ‘volume sales’ related.
But the increased scrutiny from the ATO has led to fears that financial planners will be discouraged from disclosing payments to the register.
“It would just be a tragedy if people didn’t comply with the spirit and letter of this code,” Gilbert says.
“For the purposes of the creditability of the wealth management industry, this code should be adhered to.”
A spokesperson for the FPA says the association is involved in ongoing discussions with the tax office, but declined to comment further.
Recommended for you
The strategic partnership with Oaktree Capital and AZ NGA is likely to pave the way for overseas players looking to enter the Australian financial advice market, according to experts.
ASIC has cancelled a Sydney AFSL for failing to pay a $64,000 AFCA determination related to inappropriate advice, which then had to be paid by the CSLR.
Increasing revenue per client is a strategic priority for over half of financial advice businesses, a new report has found, with documented processes being a key way to achieving this.
The education provider has encouraged all financial advisers to avoid a “last-minute scramble” in meeting education requirements prior to the 31 December 2025 deadline.
