Deductible fees to boost your business

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The Institute of Public Accountants (IPA) has called on the Government to make client fees for initial financial plans tax deductible. The institute says the move would be keeping in line with FoFA intentions of boosting access and affordability of financial advice.

“Allowing initial fees to be tax deductible would considerably assist consumer access to affordable financial advice. As it stands, the absence of a tax deduction for these fees discourages many,” the IPA said in the submission.

IPA senior tax adviser Tony Greco says clients probably aren’t aware that the fees they will have to pay will be non-deductible. “No one’s telling the public that that’s the likely scenario – if it’s a new investment or a plan that leads to no purchase of financial products then they’re probably going to wear [those costs]. It’s something that’s going to rear its ugly head come 1st July when they get bills for the services of the financial planner.”

He says most clients will be expecting some sort of tax relief from the upfront fees, and many will be turned off advice when they learn that some, if not all, of the advice is non-deductible. It isn’t the problem of the financial planner to tell them, and they probably don’t want to for fear of scaring away clients, says Greco. The client will take their financial advice bill to the accountant, and the accountant will be the bearer of bad news.

He says the Government could address the problem by making the fees tax deductible, without any extra cost. “The thing is, the costs have already been buried. Because it’s coming in via commissions, which are deductible, it’s not going to be a huge cost to Government unless more people visit a financial planner.”

The Government have acknowledged that there is merit in the idea, but Greco says that due to fiscal restraints they will probably want to cap it. “In this climate there’s got to be some upper limit to what can be claimed.

“Given that FoFA is all about making financial advice more accessible and more affordable, the missing link now is getting some tax deduction.”

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  • Pat on 4/04/2013 2:09:07 PM

    Phil, the whole notion is to make advice more accessible. Accessible to whom? Low income earners. What is worth more to a low income earner, given the same quantum: a tax offset or a tax deduction?

    Who will benefit most from deductible fees? High income earners.

    The examples you give aren't really that relevant. You never see a charity promoting the $1.1 after tax amount of a $2 donation, do you?

  • Phil on 4/04/2013 11:29:16 AM

    Pat. How is making advice fees 34% cheaper not a driver? have a look at how health insurers quote their premiums (after rebate premiums) or how income protection quotes show the after deduction premium.

  • Pat on 3/04/2013 12:27:56 PM

    I must be missing a couple of things:

    1. The upfront commission, as far as I am aware, is not deductible, but added to the cost base of the investment.
    2. For the average income earner, their marginal tax rate is 34%. Is a tax deduction really that much of a driver? I still advocate for a tax offset being made available for advice provided by an AFSL holder or AR.

  • Innocent Observer on 3/04/2013 11:05:55 AM

    I agree with William.

    There is absolutely no reason why advice fees shouldn't be fully deductible, regardless of when or how the charge is incurred by the client. The fact this is still being talked about, and hasn't been legislated or approved (in full) by the ATO is simply ridiculous

  • William Haywood on 3/04/2013 10:47:59 AM

    I too am alarmed that advisers who work on commission based products are advantaged over those who work on Fee for service, not only are they getting tax deductions for the commissions but they are not required to disclose those ongoing commissions due to grandfathering rules

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