The FPA has called on the federal government to allow initial fees for the cost of financial advice to be tax deductible.
FPA general manager policy and government relations Dante De Gori made the statement in association’s submission to the federal budget 2012-13.
“Allowing initial fees to be tax deductible would greatly assist consumers’ access to affordable financial advice,” De Gori said.
The association acknowledges such a move will involve additional costs to the government, the costs would be “significantly outweighed” by the long-term benefits, he said.
“This revenue cost could be controlled by including caps on either the size of the tax deduction or an income cap on those able to receive a deduction,” he said.
“The FPA recommends preparation of an initial financial plan and ongoing management fees or annual retainer fees, be considered an expense incurred in producing assessable income, and thus tax deductible.”
At present, a fee-for-service arrangement for the preparation of an initial financial plan is not tax deductible under section 8-1 of the Income Tax Assessment Act 1997.
The reason for this is because it is not considered to be an expense incurred in producing assessable income, De Gori said.
“Consumers are paying for personal financial advice in varying ways that result in different taxation treatments for no apparent public benefit,” he said.
“The inability to claim a tax deduction for the fees associated with an initial financial plan acts as a disincentive for people to take the first step towards organising their finances on a strategic basis.
“This would have widespread costs, both for the individuals and the community as a whole.”
De Gori said encouraging the use of professional financial planning advice would, in the FPA’s view, result in a more financially literate community which is a benefit to society overall.
In April last year, the FPA and the Association of Financial Advisers reaffirmed their commitment to push for changes to tax law despite the Financial Services Minister Bill Shorten stating such a move is not on their immediate agenda.
Federal opposition assistant treasury spokesman Mathias Cormann said the Coalition is aware of the advice industry’s urgings for tax deductibility of advice.
“We’re obviously aware of the long standing desire of the financial advice industry for their advice to be tax deductible,” Cormann told InvestorDaily.
“Our priority in government will be to bring the budget back into surplus and to start repaying Labor’s debt, to abolish bad taxes like the carbon tax and the mining tax and to cut red tape, including and in particular for the financial advice industry.”
He used the Coalition’s stance on the federal government’s opt-in reform as an example.
“Our commitment to rescind Labor’s costly push to force people to re-sign contracts with their financial advisers on a regular basis for example will cut costs for both financial advisers and their clients,” he said.
“Our tax policies will be finalised and announced between now and the next election.”
