Let’s talk about financial advice fees and tax—specifically, when you can claim them as deductions.

The ATO’s tax rulings are guidelines that explain how tax laws apply in different situations.

Their TD 2024/7 (Income tax: deductions for financial advice fees paid by individuals who are not carrying on an investment business)ruling clears up the rules for deducting financial advice fees if you’re not running an investment business.

The Big Picture

If you’re paying for financial advice, you might be wondering, “Can I claim this on my tax return?” The answer is, well, it depends.

What’s Deductible?

So, what kind of financial advice fees are deductible?

  • Income-Related Advice: If you’re paying fees for ongoing advice about managing income-producing investments (like shares or managed funds), that’s deductible under section 8-1.
  • Income Protection Insurance: If you get advice on income protection policies (not life or trauma insurance, though), these are also deductible.
  • Tax Planning: Fees that are incurred for tax planning, like structuring your salary package or maximising tax savings for your investments, can also be claimed—just make sure the adviser is a registered tax agent.

What’s Not Deductible?

However, certain expenses are not tax deductible.

  • Initial Investment Advice: Planning where to invest your money (e.g., setting up a new portfolio or investing for the first time) is considered a capital expense.
  • Private or Personal Budgeting: If the advice is more about managing your day-to-day spending, that’s on you—no deduction.
  • Insurance Types That Aren’t Deductible: Advice on life or trauma insurance policies is not tax deductible.

Splitting the Bill

Here’s where things get a little tricky. If you’re paying for advice that covers both deductible and non-deductible areas, you’ll need to break down the costs (a process known as apportionment). For example, if part of your adviser’s invoice is for managing your tax affairs and the other part is for a new investment plan, you can only claim the tax-related portion.

Real-World Scenarios

Let’s look at some real-world examples:

  1. Jane’s Investment Review: Jane pays her adviser to review her existing share portfolio and suggest tweaks to improve returns. That’s deductible because it’s all about maintaining her income stream.
  2. Raj’s New Venture: Raj spends money on advice for setting up his first share portfolio. No deduction here—it’s considered an initial capital expense.
  3. Sophie’s Salary Sacrifice: Sophie’s adviser helps her restructure her salary to include more tax-effective benefits. Since it’s tax-related, she can claim a deduction.

Evidence is Key

To claim a deduction, you need supporting evidence. An invoice showing what the advice was for and how much you paid will be sufficient. No detailed invoice? No deduction.

Why This Matters

Understanding this determination is essential for anyone seeking financial advice and planning to claim it in their income tax return.

As we approach the halfway point of FY25, now is the perfect time to review your supporting evidence and ensure clarity on the types of financial advice that are tax-deductible. Staying prepared and informed will help you remain compliant!