Under the tax laws, you can claim a tax deduction on fees paid for investment advice as long as you incur the costs in the course of gaining or producing assessable income. Determining which fees are deductible can be confusing. Therefore, this article will go through the different fees charged by financial advisers and whether they are tax deductible.
Initial fees – preparation of statement of advice (SOA)
You cannot claim a tax deduction on fees charged for the preparation of an investment plan (otherwise known as a statement of advice). The fee for preparing a SOA can’t be claimed as a deduction because it is not seen as a cost incurred in the course of gaining or producing assessable income. At this point, you’re putting an investment in place. Therefore, the investment has not yet produced any assessable income.
Existing Investments – preparation of statement of advice (SOA)
The fee charged is for preparing an SOA. This cost isn’t related to the production of assessable income. Why? While you may be seeking advice on an existing investment, the preparation of an SOA relates to a future strategy. So for the same reasons as above, the fee is not deductible.
A review fee will be deductible where you seek advice to manage or review an investment strategy so as to gain or produce income. When claiming a deduction, you have to consider whether the advice relates to other parts of the investment that do not produce assessable income. If it does, you must only claim a proportion of the fee that reflects the advice given to gain or produce income.
The rules for review fees differ for superannuation. Therefore, it’s better to go through each circumstance separately.
1. Superannuation in accumulation phase
What is the accumulation phase? This is the period in which contributions are made into your fund for your retirement.
The review fee is not deductible if the advice relates to the client. Why? Superannuation investments don’t produce assessable income for the client. The income is the super fund’s assessable income.
2. Fees incurred by trustee if super fund is in accumulation phase
An existing super fund can deduct review fees where they’re incurred in gaining or producing assessable income.
3. Superannuation in pension phase
What is the pension phase? When the super fund pays you an income or pension.
You may claim a deduction for a review fee paid in getting advice on a super fund that’s in the pension phase. To get the deduction you must pay the fee directly (i.e. it can’t be paid by the super fund) and your pension payments must be assessable income. Income from a pension is only assessable if you are under the age of 60.
1. Ordinary Money
Summarise the following:
“If an investor is investing ordinary moneys and the underlying investments generate assessable income, it’s likely that an ongoing investment review fee will be deductible regardless of whether it’s paid directly by the client or debited from the investment as an ongoing advice fee.”
Fees for taxation advice are tax deductible. Deductible expenses relating to managing your tax affairs include:
- Tax planning advice
- Buying tax reference material
- Preparing and lodging a tax return and activity statements
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