The Australian Taxation Office (ATO) has recently released Taxation Determination TD 2024/7, providing clearer guidelines on when financial advice fees can be claimed as tax deductions. This update offers Australian investors and taxpayers greater clarity without fundamentally changing the ATO's position on deductibility of financial advice costs.

Understanding Deductible vs Non-Deductible Financial Advice Fees

The determination makes important distinctions between different types of financial advice fees and their tax treatment. For Australian investors managing investment portfolios, understanding these distinctions is crucial for maximising legitimate tax deductions.

Initial vs Ongoing Fees

Initial consultation fees for establishing financial plans or investment structures are generally considered capital in nature and therefore not tax-deductible. These upfront costs relate to creating an investment structure rather than generating income from existing investments.

On the contrary, ongoing advice fees may be deductible when they directly relate to producing assessable income. For investors with established portfolios, this means regular advisory fees for managing income-producing investments could qualify for deductions.

The Income-Producing Test

For any financial advice fee to be deductible, it must satisfy the fundamental requirement under Australian tax law - it must be incurred in gaining or producing assessable income. Property investors, for example, may deduct advice fees related to managing rental income but not fees for advice on purchasing investment properties.

Specific Scenarios for Australian Investors

Small Business Tax Planning

Australian small business owners should note that financial advice incorporating tax guidance is potentially deductible, but only when provided by qualified tax professionals. This highlights the importance of working with advisors who hold appropriate qualifications when seeking tax-related financial advice.

Investment Management Advice

For Australians managing investment portfolios, fees paid for advice on:

• Managing existing income-producing investments

• Optimising tax outcomes from current investments

• Ongoing portfolio reviews focused on income generation

may qualify for tax deductions.

Non-Deductible Advice

Conversely, Australian investors should be aware that fees for the following types of advice are typically not deductible:

• Setting up initial investment structures

• Creating comprehensive financial plans

• Personal insurance recommendations

• Estate planning services

Important Exclusions

The ATO determination specifically excludes two significant scenarios:

1. Individuals operating investment businesses - different rules may apply

2. Financial advice fees paid directly from superannuation funds

This is particularly relevant for SMSF trustees who should consult with SMSF specialists regarding the treatment of advice fees paid from their funds.

Practical Application for Australian Taxpayers

Record-Keeping Requirements

To support deduction claims for financial advice fees, Australian taxpayers should maintain detailed records including:

• Itemised invoices showing the nature of services provided

• Documentation demonstrating the connection to income production

• Evidence of the advisor's tax qualifications where relevant

Partial Deductibility

When financial advice covers both income-producing and non-income-producing matters, only the portion related to generating assessable income can be claimed. Investors should request advisors to clearly itemise their services to facilitate appropriate apportionment.

2024-25 Financial Year Considerations

As we move into the 2024-25 financial year, Australian investors should:

• Review ongoing advice arrangements to identify deductible components

• Discuss with advisors how to structure future advice to maximise legitimate deductions

• Consider timing of advice payments for optimal tax outcomes

Expert Recommendations

Proactive Planning

Australian taxpayers should work proactively with their accountants and financial advisors to properly categorise financial advice costs. This collaborative approach ensures maximum legitimate deductions while maintaining ATO compliance.

Documentation Strategy

Request detailed invoices from financial advisors that clearly separate advice related to:

• Managing existing investments (potentially deductible)

• Creating new investment structures (generally non-deductible)

• Personal financial matters (non-deductible)

Frequently Asked Questions

Can I claim a deduction for financial plan preparation fees?
Generally no. Initial financial planning fees are typically considered capital in nature and not deductible.

Are ongoing investment management fees tax-deductible?
Yes, if they relate directly to producing assessable income from existing investments.

Can I claim advice fees if my financial advisor also provides tax advice?
You may claim the portion related to tax advice if your advisor is a qualified tax professional.

How do I determine what percentage of mixed advice is deductible?
Request itemised invoices from your advisor and consult with your accountant to determine appropriate apportionment.

Are SMSF establishment advice fees deductible?
No, these are capital in nature. However, ongoing SMSF administration advice may be deductible to the fund.

Australian investors seeking to optimise their tax position should consult with qualified tax professionals familiar with ATO requirements. With proper planning and documentation, legitimate deductions for financial advice fees can contribute significantly to overall investment returns.