Table of contents
- Introduction
- So, what’s changed?
- The availability of deductions
- Documentation matters
- Apportionment of mixed-purpose fees
- Superannuation: the grey zone
- What this means for taxpayers and advisers
- Final thoughts
Introduction
The Commissioner’s guidance on the deductibility of financial advice fees, Taxation Determination TD 2024/7, re-examines a familiar issue through a modern lens. The determination, whilst providing nothing fundamentally novel, has landed in a regulatory landscape where the lines between financial advice, tax planning and wealth management are increasingly blurred.
For taxpayers and advisers alike, TD 2024/7 is a timely reminder that not all financial advice is equal – at least not in the eyes of the tax law.
So, what’s changed?
On the face of it, TD 2024/7 appears to be a simple modernisation of Taxation Determination TD 95/60 (now withdrawn). However, it reflects the Commissioner’s response to the evolving financial advice industry, including regulatory reforms, industry feedback and advocacy.
The determination not only expands the scope of the deductions available but also clarifies the conditions under which they may be claimed. For example, the old TD 95/60 limited deductibility of financial advice fees to ongoing investment advice directly linked to assessable income (s 8-1 of ITAA 1997), whereas TD 2024/7 provides that deductions may be available under both s 8-1 and s 25-5 (which allows deductions for expenses incurred in managing tax affairs, subject to specific requirements).
Importantly, the determination re-iterates that deductibility hinges on the substance and purpose of the advice, not just the qualifications of the adviser or the label on the invoice.
The availability of deductions
The guidance in TD 2024/7 applies to individuals not carrying on an investment business, and draws a clear distinction between advice that is “deductible” and advice that is not.
Examples of deductible advice include:
- ongoing advice related to existing income-producing investments (eg portfolio reviews or asset allocations).
- advice on income protection insurance, where premiums are themselves deductible, and
- tax-related advice provided by a registered tax agent or qualified tax financial adviser, including structuring advice for tax efficiency or advice regarding salary packaging (deductible where it involves application of tax laws, such as FBT implications).
Not all advice provided by a tax agent or tax adviser would be deductible. Where an adviser merely provides factual information about a financial product that does not involve the application or interpretation of the taxation laws, the advice will not be for managing the individual’s tax affairs and therefore, not deductible.
Examples of non-deductible advice include:
- initial advice on new investments (considered capital in nature)
- advice on life, total and permanent disability or trauma insurance (as premiums are not deductible)
- personal budgeting or general financial goal-setting, and
- advice relating to non-assessable or exempt income (eg tax-free super pensions).
TD 2024/7 provides the following useful example:
Example 1 – initial advice arrangement
Claudio is a financial adviser authorised to provide personal advice to retail clients by a financial services company which holds a financial service licence. Claudio is a recognised tax adviser for the purposes of section 25-5.
Claudio meets with a new client Min-Ji, an Australian resident who earns salary, has savings in an interest-bearing account, holds shares in several Australian public companies and who is a member of a superannuation fund. Min-Ji is seeking financial advice from Claudio on her financial circumstances, including her pre-existing investments, to enable her to increase her regular income.
Claudio and Min-Ji agree that Claudio will provide the financial advice for a fee. Claudio makes relevant enquiries through the completion of a fact-finding process to determine Min-Ji's needs and objectives.
Claudio assesses Min-Ji's financial situation by considering her assets and liabilities, income, risk profile and tax profile. Min-Ji's portfolio already includes shares in several Australian public companies which she receives dividends from each year. In order to diversify her portfolio, Claudio recommends that Min-Ji retain her existing investment in Australian public companies and invest any new savings in units in a managed investment fund which provides a periodic return. In providing this advice, Claudio interprets and applies the tax laws to Min-Ji's circumstances and provides advice about liabilities, obligations and entitlements when acquiring, holding and disposing of the units in the managed investment fund. It is reasonable to expect that Min-Ji will rely on the advice provided by Claudio.
To the extent that Claudio charges Min-Ji for reviewing her financial situation, including her pre-existing investments and recommending she acquire the units in the managed investment fund, this portion of the fee is not deductible under section 8-1. This is because this portion of the fee is incurred in putting an income-earning investment in place as well as being in relation to the income-earning structure. It is accordingly considered to be capital or of a capital nature.
Min-Ji is able to claim a deduction under section 25-5 in relation to the portion of the fee that is for tax (financial) advice provided by Claudio. This is because the advice is provided by a recognised tax adviser in relation to managing Min-Ji's tax affairs and the requirements of section 25-5 are satisfied. The tax (financial) advice in this situation is the advice relating to the taxation implications of the investment in the specific managed investment fund nominated. As the advice is provided for multiple purposes, Min-Ji needs to apportion the total amount of the fee between the different components of the advice on a fair and reasonable basis.
Documentation matters
An individual must have sufficient evidence of an expenditure to claim the expense as a deduction. According to TD 2024/7, an itemised invoice (eg a fee disclosure statement or an advice fee consent form) which details the following would be sufficient:
- the name of the financial adviser
- the amount of the expense
- details of nature and purpose of advice
- the date that the expense was incurred, and
- the date that the invoice was produced.
Apportionment of mixed-purpose fees
One of the most practical challenges for both taxpayers and advisers is apportioning mixed-purpose fees. TD 2024/7 clarifies that where a single fee covers both deductible and non-deductible components, it must be apportioned on a fair and reasonable basis.
As the onus is on the taxpayer to provide evidence of a fair and reasonable apportionment, a collaborative approach between taxpayers and their advisors is required. A generic invoice stating “taxation advice” is not sufficient for these purposes. Instead, bills should be itemised and clearly outline the nature and purpose of each component of advice.
Tip for advisers: Consider updating your engagement letters to clearly reflect the tax treatment of services provided. This will help clients and their tax agents substantiate deductions.
Superannuation: the grey zone
TD 2024/7 does not provide guidance on deductions for advice paid from superannuation funds. However, this does not mean that all superannuation related advice is off-limits for deductions to individuals. If the advice relates to managing tax affairs (such as contribution strategies or pension commencement) it may still be deductible under s 25-5, provided it is delivered by a qualified tax adviser and is paid personally by the taxpayer – not from the fund.
The determination provides this helpful example in relation to superannuation funds:
Example 4 – superannuation and estate planning advice
Nate is a financial adviser authorised to provide a comprehensive range of personal advice to retail clients as a representative of a company which holds a financial services licence. Nate is also a recognised tax adviser for the purposes of section 25-5.
Nate meets Juanita who is seeking advice on maximising her income in retirement and transferring wealth to her children when appropriate. Juanita is employed as a teacher earning $115,000 per annum and she has $450,000 in superannuation.
Nate agrees to provide Juanita with advice for a fee. Nate makes relevant enquiries through the completion of a thorough fact-finding process to ascertain Juanita's needs and objectives. Nate assesses Juanita's financial situation by considering her assets, liabilities, income, risk profile and tax profile.
Nate then provides financial advice to Juanita and recommends she establish a self-managed superannuation fund, increase contributions to the new superannuation fund by entering into a salary sacrifice arrangement with her employer and suggests that she will need to arrange for her solicitor to update her will and power of attorney. It is reasonable to assume that Juanita will rely on Nate's advice.
In particular, Nate:
- interprets and applies the income tax laws to Juanita's circumstances
- gives advice about liabilities, obligations and entitlements and tax implications resulting from the establishment of a self-managed superannuation fund, and
- provides advice on the tax implications of increasing contributions to the new superannuation fund by entering into a salary sacrifice arrangement with Juanita's employer.
The component of the fee that relates to the advice on the establishment of the self-managed superannuation fund will not be deductible under section 8-1 as it is incurred in relation to Juanita's income-earning structure and is capital or of a capital nature. However, the component of the fee that relates to advice on the tax implications of establishing the self-managed superannuation fund are deductible under section 25-5.
The component of the fee that relates to providing advice on interpreting and applying the income tax laws to Juanita's circumstances (including entering into the salary sacrifice arrangement) are deductible under section 25-5. This is because the advice is in relation to managing Juanita's tax affairs, it is provided by a recognised tax adviser and the requirements of section 25-5 are satisfied. As the advice is provided for multiple purposes, Juanita needs to apportion the total amount of the fee between the different components of the advice on a fair and reasonable basis.
For completeness, it should be noted that in certain circumstances, superannuation funds may be entitled to deductions for costs incurred in providing financial advice to members about their interest in the fund. Guidance on this matter is available in Practical Compliance Guideline PCG 2025/1, which also outlines the ATO’s methodology for calculating the deductible amount.
What this means for taxpayers and advisers
- Taxpayers should be aware that not all financial advice fees are deductible – deductibility hinges on the nature of the advice and the quality of the supporting documentation.
- Advisers should help their clients in identifying deductible elements and ensure invoices clearly reflect this.
- Tax agents and lawyers should review client claims for financial advice deductions with a critical eye, particularly where apportionment is needed.
Final thoughts
TD 2024/7 does not rewrite the rules, but it does provide greater clarity on them. In an era where financial advice is increasingly holistic, TD 2024/7 requires both advisers and taxpayers to be more precise in how they define, deliver, and document advice.
If in doubt, seek professional assistance and as always, ensure your paperwork supports your claims.
