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Is Financial Advice Tax Deductible?

As individuals and businesses navigate through the various tax laws and complex investment decisions, the question of whether financial advice is tax-deductible emerges as a crucial consideration.

With this, it’s safe to say that the expertise offered by accountants stands as a superior option, not only for their proficiency in tax matters but also for the broader spectrum of services and knowledge they provide.

In this article, we will delve into which financial advice and services are actually tax deductible, as well as the advantages of considering accountants, shedding light on why opting for their expertise proves to be a prudent choice in maximizing both financial efficiency and compliance.

The Role of Accountants

Before we go through the various financial advice, services and fees that are tax deductible, it is crucial to grasp the significance of engaging professional accountants for this purpose, as opposed to attempting it independently.

Extensive Insights and Expertise in Tax Laws and Regulations

Before you seek advice from a tax accountant, be very careful that you find one that is experienced in the field. Most tax agents in Australia are only providing tax return services, and won’t provide any tax planning advice. One of the key advantages of engaging experienced tax accountants is their deep understanding of tax laws and regulations. Superior tax accountants are trained professionals with expertise in navigating the complex landscape of tax laws, ensuring that their clients remain compliant with applicable laws while maximizing tax-saving opportunities.

The Comprehensive Nature of Accountant Services

Beyond their proficiency in tax matters, experienced accountants offer a holistic approach that extends far beyond mere compliance with tax regulations. Accountants take into consideration the broader financial landscape, encompassing factors such as budgeting, cash flow management, risk mitigation and more.

Understanding Tax Deductibility of Financial Advice

It’s essential to understand that, generally, the cost of advice on tax affairs and other financial advice fees can indeed be deductible as it is an expense incurred that produces assessable income. However, for detailed and accurate handling of such deductions, hiring a professional for these matters is considered a more reliable option.

Accountants bring the expertise required to navigate through tax legislation and maximize the financial benefits of such deductions, ensuring compliance and optimizing your tax return whilst potentially uncovering other areas of tax efficiency.

Financial Advice Types and Fees That Are Tax Deductible

Ongoing Asset Management Fees

Regular payments made for the management of your existing investment portfolio may be tax deductible, particularly if they relate to any asset that produces assessable income, for instance, a rental property.

It is important to consider that expenses associated with non-income generating items in your investment portfolio might be subject to limitations on deductibility. A few of them include private loans and insurance premiums.

Arrangement Fees for Investment Loans

When seeking financial advice for an investment loan, there is a fee associated with arranging the loan, which is directly related to obtaining funds for investments that generate income.

Do note that the loan arrangement fees can only be tax deductible if the loan is directly associated with generating income. Therefore, if the loan is used for the acquisition of assets that result in producing assessable income, you are eligible to add the arrangement fees as part of the other deductions from your taxes.

On the other hand, if the loan is used to obtain assets that do not generate assessable income or is utilized for personal purposes, the fees are not deductible.

Superannuation Fund Expenses

You can claim deductions for admin fees, investment management fees, and advisory fees that are in relation to your superannuation fund. In order to be eligible for the deductibility, the said expenses must contribute directly to improving your superannuation fund’s compliance as well as performance.

Actuarial Fees

Engaging actuarial advice to assess and evaluate the financial feasibility of specific plans and investments allows you to deduct the associated expenses or costs.

Accountancy Fees

Fees paid to accountants for record-keeping of finances, preparation of taxes, as well as services that are compliance-related are all deductible.

Audit Fees

Fees for the audit of financial statements to ensure their integrity and accuracy are included in the list of entities that are tax deductible.

Key Takeaway

Each of these types of advice and fees can be beneficial, as long as they are appropriately aligned with the Australian Taxation Office (ATO) regulations. It’s essential for businesses and individuals to fully comprehend the extent of these fees and services to legally benefit from them as deductions. For more details, please refer to the Tax Determination TD 2023 D4.

Financial Advice Types and Fees That Are Not Tax Deductible

Initial Investment Advice and Financial Plan Development

Payments made for general financial advice and plans or initial investment advice are generally not eligible for tax deductions, since these fees are not yet contributing to your assessable income.

It’s simply a capital cost or capital expense that sets the stage for future income generation, and it is advice received when you are considering investments but not yet committed.

Advice for Non-assessable Pension Income

The costs associated with seeking advice that’s concerning non-assessable pension income are generally not eligible as a tax deduction.

Given that this income isn’t subject to taxation, expenses accrued for obtaining advice concerning it are not deductible.

Cash Flow Management

Tax deductions cannot be claimed for fees linked to financial advice that isn’t related to earning assessable income, such as cash flow management and personal budgeting guidance. This is due to the fact that these expenses are categorized as personal and are not contributing to the generation of income.

Conclusion

In conclusion, the question of whether financial advice fees are tax-deductible underscores the importance of engaging accounting professionals who possess the requisite expertise and experience.

While various financial advisors may offer guidance on tax matters, tax accountants and planners emerge as the best option due to their comprehensive knowledge and specialized skills. By leveraging the expertise of accountants, individuals and businesses can maximize tax efficiency while remaining compliant with regulations.

FAQ

What’s the difference between a financial adviser and an accountant?

A financial adviser and an accountant serve distinct but potentially complementary roles within the area of financial management. A financial adviser specializes in providing advice designed to help individuals with budgeting, retirement planning, investing and more.

In contrast, a tax accountant’s expertise lies in the systematic recording, analyzing, and reporting of financial transactions. They handle tax preparation and auditing and can furnish financial statements and reports that aid in making business decisions.

Experienced tax planners are making up only a small portion of tax accountants in Australia. The ultimate aim for advanced tax planning is to maximize your long term wealth, even multiply retirement savings if you plan early. Considering how much tax we are paying in Australia – at about one quarter of our gross income and about $35k each household every year, tax planning can be a lot more powerful than financial planning. Please don’t hesitate to refer to our online YouTube videos.

If I attend a financial seminar, under what circumstances can I deduct the expense?

Attending a financial seminar might be tax deductible if the seminar’s primary purpose is to improve and generate income from your existing investment portfolio. General financial education seminars are not deductible.

How can I get a quote for your fees?

To obtain a personalised quote for our fees, you can click here.

Should financial advisers be members of the Financial Advice Association Australia?

While not mandatory, their association with this financial planning association underscores their commitment to continuous professional development and staying up to date on industry changes.

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Impact Taxation and Financial Services Pty. Ltd. is a CPA Practice based in the Bankstown area. We are committed to customizing our services to meet your financial needs and help you achieve your visions and goals.

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    10 things you should consider before buying a property

    Are you considering buying a property? Do you know you could miss opportunities to save thousands, or tens of thousands of dollars if you don’t plan well before the purchase?

    Below are a few key considerations:

    1. How should you set up your loan structure? If you don’t have a loan offset account for a rental property, after you make extra payments directly to the loan account, you can only claim interest deduction on the remaining balance of the loan. For tax purposes, this deductible balance can’t be changed even if you redraw the overpaid amount later. A good loan structure could also help you to stabilize interest rate and speed up loan repayment by combining a standard variable loan (with an offset account) and a fix rates account.

    2. Timing of renovation. You might want to do a renovation right after you have bought the rental property. But do you know for any genuine repair & maintenance included in the renovation, you can claim an outright deduction against the rental income when the property is available for rental? If the work is done before the date when the property is available for rental, you can only claim the deduction against future capital gain when the property is sold. Depend on when you are going to sell, it could take years or up to decades before you can claim the deduction.

    3. How should you split ownership? You might want to share the property ownership with a family member. For tax purposes, the percentage of ownership is based on the legal title, regardless of who is paying more on the mortgage. If the property will give you a tax profit, you might want to allocate more
    ownership to the low-income earner to utilize the lower marginal tax rate. If it is giving you a tax loss, you might want to allocate more ownership to the high-income earner to utilize the loss. The goal is for the family to pay minimum tax together.

    4. Should you use a family trust to purchase the property? There are many pros and cons related to a family trust. The advantages include tax savings on rental profit or capital gain, asset protection and succession planning on family wealth. However, family trust can’t distribute losses. All losses are trapped in the trust to be used to offset future trust profit. Therefore, you can’t utilize any rental loss in a trust to offset other income such as salary & wages. Family trusts also attract high accounting fees on initial setup and annual fees on financial statements and tax returns. State governments also charge much higher land tax on family trusts.

    5. Will the income level change in future years for different owners? You might want to forecast the possible income for different owners to understand total tax payment / savings related to the property. This could also impact on your decision making on point 3 and 4 above.

    6. Understand when you can treat your property as main residence to receive an exemption on capital gains tax. When eligible, even if you have received rental income, you could still treat your rental property as main residence and receive the exemption. To be eligible, you will need to treat it as your main residence at the beginning. Please check out this ATO link: Treating former home as main residence.

    7. Decide whether you need to purchase a depreciation report. Most taxpayers don’t know that the depreciation on the building will need to be added back to calculate capital gains tax when the property is sold. When the property is held for more than 12 months, after applying the capital gains tax discount of 50%, it will effectively cut the tax rate by half at the time of sales. This makes depreciation deductions desirable for high income earners. However, for low-income earners it might not be ideal to claim depreciation as a rental deduction since they could be paying more on capital gains tax in the future. It could get more complicated if the property is under joint ownership between high and low income earners.

    8. You might want to consider Centrelink payments for future or existing owners. Most Centrelink payments are income and asset tested. Before attaching a rental property to a family member who is receiving, or plan to receive government benefits, you might want to check the testing thresholds first to see if the Centrelink payment will be impacted. This is also applicable when you are making distributions from a family trust to different family members.

    9. Have you considered using your SMSF (selfmanaged super fund) to make the purchase of a rental property? There are a lot of tax saving opportunities with a SMSF since the income tax rate is only 15%. And the capital gains tax rate is effectively only 10% after factoring in the 1/3 discount. The major downside with a SMSF is normally you can’t get the money out until you retire or on compassionate grounds (SMSF does have more flexibilities compared to normal retail super fund. But the choices are still very limited). It could be expensive to set up and operate a SMSF too. There are also strict legal requirements on the trustees. Penalties on incompliance could be severe. Tax law around SMSF is very complicated too. You will need to find a good tax accountant specialized in SMSF to help you to understand the structure, also do a cost-benefit analysis before setting it up.

    10. Consider internal ownership changes. For your existing rental properties, you can also consider whether you should transfer the ownership between family members, or between different business structures (this is not applicable for SMSF). You might want to do this when the income level changes with family members, or rental property changes between tax profit and loss. Before the change, you need to consider the cost of transfer including capital gains tax, stamp duty, conveyancer fees, etc. Again, a cost-benefit analysis is a must before the change.

    Last but not the least, did you combine all the above strategies and compare your choices? If you haven’t yet, how would you know that you have picked the best strategy to minimize your taxes? We can help you to factor in all considerations, compare different scenarios, also present you with a Property Prepurchase Report with all our findings to help you to make a decision. Contact us today to book in a consultation with an experienced tax accountant!

    IMPORTANT INFORMATION
    This is general advice only and does not consider your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own circumstances or seek advice from your financial adviser and seek tax advice from your accountant.

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