Should financial advice be tax-deductible?

Calls in Australia for financial advice to be made tax deductible are unlikely to gain much traction on this side of the Tasman, local commentators say.

Friday, February 14th 2014, 6:00AM

by Niko Kloeten

The Financial Planning Association (FPA) and the Australian Financial Services Council are among groups lobbying the Australian government for tax deductibility on all forms of financial advice, on the basis this would make it more affordable.

“The inability to claim a tax deduction for the fees associated with an initial financial plan acts as a disincentive for people to take the first step towards organising their finances on a strategic basis,” the FPA said in a recent submission.

“Specifically allowing initial advice fees to be tax deductible would greatly assist consumers’ access to affordable financial advice that is beyond mere income tax or of a superannuation nature.

"While this would involve some additional costs to government, these costs would be significantly outweighed by the long-term benefits. Including caps on either the size of the tax deduction or an income cap on those able to receive a deduction could control this revenue cost.”

Peter Vial, general manager – tax at the New Zealand Institute of Chartered Accountants (NZICA), said the position in New Zealand had been settled for some time: financial service fees are deductible if they are revenue in nature and non-deductible if they are of a capital nature.

“Fees incurred in the course of maintaining and monitoring an established portfolio of investments are deductible. Fees for work involved in the creation or establishment of a portfolio are non-deductible,” he said.

Vial said for years there have been calls in Australia to make all expenditure on financial advice deductible.

“The issue is not currently on our government's tax policy work programme. While the idea may have merit we suspect it may be difficult to get traction on it - involving as it does the bigger issue of the distinction between expenditure on capital account and expenditure on revenue account.”

Institute of Financial Advisers president Nigel Tate said the institute was comfortable with the current tax settings for financial advice.

A lot of New Zealand clients have portfolios that are designed to provide income, so their fees are already deductible, he said.

“Also, the amount that is deductible depends on the customer’s individual tax rate and the higher the tax rate, the less likely they are to be struggling to fund the advice.”

Norman Stacey of Diversified said asking for all forms of advice to be made deductible would be “indulgent” and unlikely to succeed. “It’s probably wishful thinking to make all forms of advice tax deductible. Why not dentistry, or private schooling? And it would leave a revenue hole that had to be made up elsewhere.”

Niko Kloeten can be contacted at niko@goodreturns.co.nz

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