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Financial Advisers advice - Tax deductable?

Discussion in 'Accounting, Tax & Legal' started by gad, 7th Jul, 2006.

  1. gad

    gad Well-Known Member

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    I remember reading a thread sometime ago where the poster said that any financial advice was tax deductable.
    I have searched the forum but have been unable to find that thread.
    I paid a financial adviser (FA) $5.5k toward the end of 2005 & had assumed that fee would be tax deductable.
    Talking to the FA's offsider the other day & upon questioning if I should claim that fee as a business expense (I'm an individual, not a business)
    I was told that that fee was not tax deductable which really threw me & I didn't really question that response.
    The fee was for an initial "Statement of Advice", assistance in the application of those recomendations & on going help & advice as needed ect ect

    Would that really be the case? Is that fee really NOT tax deductable?

    Thanks in advance for any response, it is appreciated.
     
  2. TryHard

    TryHard Well-Known Member

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    Hi Gad

    That sounds a bit challenging - it would never occur to me that an investment in education to earn more income so you can be taxed on it, could not be tax deductible ? Glad you mentioned it !

    I tried some searching and came up with :
    http://www.fido.asic.gov.au/fido/fido.nsf/byheadline/Paperwork+and+trailing+commissions?openDocument

    but in true Gumbyment form its advice says about FA's fees.
    "...Some costs may be deductible at once, others deductible over time, and others not allowable as deductions at all."
    Wow, you don't say ! ?

    Although it does point you in the direction of your Tax Accountant, which I guess is also a good idea. Perhaps you need to prove that sort of spend is closely related to serious investment activities you're undertaking as an individual, in order to be able to claim it ?

    Cheers :)
    Carl
     
  3. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    I'm just guessing here (perhaps I should call Nick on his Greek island and ask him - I'm sure he'd love to hear from us :eek: )

    ... with most things of this nature, any expense incurred before the actual investment is made is generally not deductible

    ... at best it is added to the cost base (if the expense was directly involved in setting up the investment), and at worst is not deductible at all because it does not lead to an income producing activity (eg. flying to another city to search for a property to buy is generally not deductible).

    Any FA expenses incurred in managing the investment would be deductible I'd say, and any FA expense incurred in setting up the investment in the first place would be added to the cost base.

    I don't actually know whether this is how it is handled - I'm only speculating (I don't use an FA myself, so I've never had to ask my accountant).
     
  4. Nigel Ward

    Nigel Ward Team InvestEd

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    From memory an initial plan fee is not deductible but ongoing advice fees are...but I will need to check and come back 2 you.

    Cheers
    N
     
  5. Alan

    Alan Well-Known Member

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    Yes......some of these fees etc. can really vary in their deductability.

    I initially assumed a Fund Entry Fee through an advisor would be deductible but was later informed by my accountant that in this particular instance it wasn't(ouch!). NB. Good accountant too.
     
  6. TryHard

    TryHard Well-Known Member

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    Heh, if so, sounds like a Financial Adviser should structure their fees 1% for the initial plan and 99% for the ongoing advice :)
     
  7. Nigel Ward

    Nigel Ward Team InvestEd

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    Try

    We may joke about it but I think to some extent financial advisers should try to do so (with their client's agreement).

    The ATO's view is that fees for drawing up a new financial plan/SOA are not deductible even if some of your existing investments are included in the plan. In contrast, ongoing management fees or retainers paid to financial planners or costs of managing a portfolio are deductible.

    Have a look at Tax Ruling IT 39, Tax Determination TD 95/60 and Interpretive Decision ID 2004/139 for further guidance. (Sorry not up with how to do TinyURLs :eek: )

    URL1

    URL2

    URL3

    Your accountant should have the lowdown on what is and is not deductible.

    Gad, hope that helps

    Cheers
    N.
     
    Last edited by a moderator: 9th Jul, 2006
  8. gad

    gad Well-Known Member

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    Thanks for the feedback guys, much appreciated.
     
  9. Mark Laszczuk

    Mark Laszczuk Well-Known Member

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    Emailed Dale asking him how it can be done and he pretty much said it couldn't. In relation to the plan fee I mean.

    Mark
     
  10. Nigel Ward

    Nigel Ward Team InvestEd

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    Couldn't a planner charge on the basis that the upfront plan fee is lower but then charge for say quarterly investment reviews? The latter being deductible? I.e. less upfront but more for management?

    Just a thought.

    N.
     
  11. Mark Laszczuk

    Mark Laszczuk Well-Known Member

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    Nigel,

    I suggested something along those lines, but it seems no go. Which is a bit of a bummer.

    Mark
     
  12. Dolfinwise

    Dolfinwise Well-Known Member

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    Deductible advice fees in practice

    As previous posts indicate, the letter of the law is that fees for upfront advice is not deductible. However in practice, where a financial adviser has open and upfront discussions with the client about the fee to be paid (as should occur) there are a number of ways of making the payment deductible with mutual consent.

    As already mentioned, weighting the payment towards the ongoing advice component can help as long as it can be justified. Another option is to agree to take the payment out of the initial investment funds. (Sounds like commission doesn;t it! but as longas the amount is the same and the client is aware of the amount this will lead to the best out come as it will result in a deduction for the payment coming out in the wash when the tax return is prepared.

    Banning of commission while I applaud it on one level would shut down this option which will be a shame adn result int he loss of deductions.

    Also as previously mentioned if their are preexisting investments paying taxable income that much of the advice relates to then that may be a basis for a deduction.

    As always this is not to be taken as advice but as a recommendation to see a good accountant!

    Regards
    Dolfinwise
     
  13. PHDorwhat

    PHDorwhat Member

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    Super darling...

    If the SOA fee includes components related to investing your super monies or advice on Super then I'd be surprised if those components were not proportionally deductible.
    I suppose this would assume a SMSF is already in operation prior to seeking FP advice and you are effectively seeking FP advice regarding the investment strategy of the SMSF.

    I'm pretty sure an Industry or Retail super fund will not help out with this. As I understand they would be happy to engage their own FP's to assist you, but you would have to pay the FP fee from your after tax pocket money rather than direct from your super that the Industry or Retail Fund is controlling.