Nick Dignam from Fortitude Investment Partners shares insights with Lachlan Maddock from Fortitude Investment Partners on how a diversified portfolio in mid-market private equity is structured. The Inside Adviser
The world of alternative investments is at a crossroads. As markets defy expectations and liquidity concerns take centre stage, investors find themselves forced to rethink how they deploy capital in an increasingly complex environment.
Upfront advice tax deductibility bid fails, but silver linings prevail
The Australian Tax Office has made a final determination regarding the tax deductibility of upfront advice, maintaining that the associated cost should remain non-tax deductible because it “not incurred in gaining or producing assessable income” and classed as capital expenditure.
The decision comes after a persistent, 5-year lobbying effort from the Financial Advice Association of Australia to have upfront advice fees deemed tax-deductible in the same way that ongoing advice fees are.
In its submission to the ATO’s draft review of the advice tax deductibility rules, the FAAA argued that while upfront advice may have been a capital expenditure in the past, increased regulation meant that it had become more proactive, incorporated the information required to assess investment, and by extension became an ongoing cost.
“In 2024 all financial advice requires consideration of an individual’s financial situation and needs, with relevant strategies delivered to meet their goals and objectives,” The FAAA stated. “Practically, this requires consideration or advice regarding an individual’s pre-existing income producing assets. In this instance there is a clear nexus between that person’s existing income, liabilities, financial assets and the new investments acquired in accordance with the advice. This makes the advice incremental in nature.”
While the ATO didn’t accept the FAAA’s argument it did add one important concession to its determination, updating its position in the draft determination that advice fees relating to tax (financial) advice can be deductible if the advice is provided by a Qualified Tax Relevant Provider.
“The confirmation that initial advice related to tax is deductible, when provided by a QTRP, is a big improvement over the original [tax determination], which did not support deductions for upfront advice to any extent,” commented FAAA chief executive Sarah Abood.
For its part, the FAAA took the failure to change the tax office’s mind on upfront advice fee deductibility in its stride. The association has been a vocal and engaged advocate for an updated tax determination, but Abood says that after half a decade of lobbying it’s time to now start developing guidance for members on how to move forward with the determination.
“In our most recent consultations, we asked the ATO to reconsider the deductibility of upfront fees under section 8-1 for other types of advice as well, particularly for clients with pre-existing investments. The ATO has not agreed to this. However we are very happy after five years to now have clarity with the final [tax determination] 2024/7,” Abood said.
The benefits, she believes, should be felt by all advice-seeking Australians.
“With the added clarity surrounding deductions… we believe a significant portion of a typical advice fee will be deductible for the clients of many advisers and practices. Increased deductibility of advice fees should help make advice more affordable for many Australians.”
