Ultimate Guide to Claim Tax Return for Financial Advice

As tax season approaches, many Australians question if they can get their money back by claiming tax deduction for financial advice fees they paid in the past year.

Knowing the rules about claiming these fees can help you save hundreds of dollars on your tax return.

Financial advice is a big industry in Australia. With an estimated around $5 billion annually, according to IBISWorld. More Australians are turning to professionals to help them manage their money. That’s why understanding tax deductions for financial advice fees is important.

This article explains how Australian taxpayers can claim deductions for financial advice fees.

We’ll look at the key rules around what fees can and can’t be claimed, the records you’ll need, limits to be aware of, and common mistakes to avoid.

What Counts as Financial Advice

According to Australia’s financial watchdog ASIC, “financial advice means giving suggestions or opinions to help people decide about a specific money product. It includes recommendations or reports presented as advice or meant to act like advice.”

The advice needs to relate to a specific financial outcome for it to count as financial advice.

Common examples of financial advice include:

1. Retirement planning advice
2. Insurance coverage recommendations
3. Advising on investment property purchases or sales
4. Superannuation consolidation and contribution recommendations
5. Recommending specific stocks, managed funds, or other investment products

Services like budgeting, cash flow management and general savings advice are not considered financial advice under the regulations.

Can You Get a Tax Deduction for Financial Advice? Yes, or No?

YES. You can deduct the money you spend on financial advice from your taxes.

This is allowed if the advice you receive leads to an investment creating taxable income or is closely connected to one.

If the advice is for managing your existing investments. You may also be able to deduct those expenses.

When Can You Claim Financial Advice in Your Tax Return?

You can claim a deduction for financial advice from your taxes when filing your tax return.

There aren’t specific rules about deducting fees for financial advising. So, these costs fall under standard deduction laws. According to these rules, you can deduct expenses related to earning taxable income.

But what about the costs of getting financial advice?

1st. Financial Strategy and Investment Portfolio Creation

If you’re spending money to create a financial strategy or set up an investment portfolio. Sorry, you can’t deduct those costs.

According to a Tax Determination by the Australian Taxation Office (ATO), there’s not a strong enough link between making these investments and getting a direct profit.

2nd. Cost of Managing Existing Investments Portfolio Currently in Use

The costs of keeping an existing investment portfolio that has financial advice are deductible from taxes. However, the financial advice fees must be related to profits for it to be fully deductible.

This suggests that if the financial advice relates to investments that don’t make profits. Then just a small percentage of the expenses will be deductible.

3 General Rules for Claiming Tax Deductions

1. To get a tax deduction for financial advice fees. The advice must be about an investment that makes money you have to pay taxes on. This means the advice has to directly connect to the income you make from the investment (CPA Australia, 2014).
2. The advice must come from a qualified advisor who is registered and licensed. This can be a financial advisor, an accountant, a tax agent, or a licensed broker (Bristax, 2022).
3. You can generally deduct ongoing fees connected to managing existing investments each year. You don’t have to claim them all in the year the advice was received (Ausiex, 2022).

Tax-Deductible Fees You Can Claim

Several common types of financial advice fees can be claimed as tax deductions if they relate to earning or producing assessable income:

1. Investment Property Advice

Fees paid for advice on purchasing an investment property can be deductible, according to the ATO. This includes advice on selecting a property to buy and maximising rental income. Ongoing fees for managing an investment property can also be deducted.

2. Share Investing Advice

The costs of share investing advice from a qualified advisor, like recommendations on specific stocks or trading strategies, can be deducted. This includes brokerage fees and subscriptions for share investing newsletters containing recommendations.

3. Superannuation Advice

The cost of advice relating to your superannuation fund can be deducted, like consolidating accounts or setting up contributions Ongoing fees for managing existing super investments may also qualify.

4. Margin Lending, Accounting and Tax Advice

Specialist margin lending, accounting and tax advice relating to your investments can also be deducted, according to the ATO.

This covers advice on establishing margin loans or leveraging investments.

Non-Deductible Financial Advice

Some common types of financial advice are not tax deductible, even if provided by a qualified financial advisor.

This includes advice related to:

1. Budgeting And Cashflow Advice

Financial plan preparation fees for developing a budget, analysing spending habits, and general money management advice are not deductible. The focus is on organizing finances rather than making profits.

2. Insurance Planning

Advice on insurance needs like life, disability, and long-term care insurance does not produce investment income. So, these fees are generally not deductible.

3. Mortgage Broking Fees

Getting advice on mortgages, refinancing, or accessing home equity is not deductible. These fees are considered personal rather than for producing assessable investment income.

4. Upfront Fees

Not deductible. Any upfront fees charged by financial advisors are not eligible for tax deduction.

5. Retirement Financial Advice

If you’re getting advice about non-taxable pension income, you won’t get a tax break.

6. Initial Investment Advice & General Financial Advice

Financial advisor charges for your first investment advice and general financial advice will help lower your tax bill.

Records Needed to Claim Tax Deductible

To claim a deduction for financial advice fees, you need to have proper records and documentation. The main documents you should keep are:

1. Invoices/receipts showing the fees paid – These should clearly describe the services provided and the amount charged.
2. Letter from your advisor outlining the advice provided – This helps substantiate that the advice was related to assessable investments.
3. Documents showing any investments made based on the advice – For example, contract notes for share purchases you made based on your advisor’s recommendations. This further supports that the advice provided was implemented.

IMPORTANT NOTE

Taxpayers are responsible for maintaining acceptable documents to prove the amounts claimed on their returns. This includes invoices, receipts, cancelled checks, and other payment records.

• Make sure to store records in a safe place where they won’t be lost or destroyed.
• It is recommended to keep records for at least 3 years after filing your return.
• Or 2 years after paying any associated taxes.

Failing to keep proper documentation can lead to the denial of tax deductions claimed.

Caps and Limits on Claiming Tax Deductible

You can claim financial advice fees as deductions. As there is no limit on tax-deductible fees.

But they need to be reasonable for the advice you get. The fees must be commercially realistic and right for the services you receive to qualify for the full deduction, according to CPA Australia.

Excessive fees may be questioned or denied in part or full by the ATO.

For example, if you paid $5,000 for a simple superannuation fund review. The ATO may consider this unreasonable and cancel deductions above the standard rate.

If you try to deduct fees for advice that seem too high for the service you have. The ATO tax authorities might check your whole tax return. It’s a good idea to make sure that the deductions you claim match the usual rates and fees in the market.

Common Mistakes to Avoid

There are some common mistakes that Australians make when claiming deductions for financial advice fees. This can lead to problems with the ATO.

Being aware of these downsides can help avoid issues when filing your tax return.

1. Only Claim Deductions for Taxable Income

One mistake is trying to claim deductions for advice that is not related to producing assessable income. Such as budgeting, insurance, or general financial planning.

As discussed earlier, the financial advisor charges must relate directly to investments that make taxable income to be deductible. So, claiming fees for non-deductible advice could lead to an audit.

2. Maintain Proper Records

Another error taxpayers often make is failing to maintain proper documentation and evidence for the fees claimed.

The ATO needs invoices, receipts, and other records. To show the advice was taken and the fees were paid. If you don’t have this documentation. Then it’s hard to prove your claims. ATO will reject your deductions.

3. Only Claim Deductions for the Year You Paid Financial Advice Fee

Additionally, some people incorrectly claim deductions for financial advice fees for several years. Instead of the year, they got the advice. You can only deduct fees in the same year you paid them. If you spread out your claims over different years. It is considered non-compliant and goes against the tax rules.

Using a Tax Agent

With the complex tax laws in Australia, many people choose to have their tax return prepared by a professional tax agent.

There are several benefits to using a tax agent:

1. Tax agents know the latest tax laws and rules.
2. A tax agent can save you time by doing all the paperwork for you.
3. Tax agents stay informed about any changes to tax laws every year.
4. If the ATO audits you or has questions. Your tax agent can take care of it.
5. Tax agents make sure you get all the deductions you qualify for and get the most money back.
6. Tax agents work closely with the ATO. This speeds up the process of your return and refund.

Hire an experienced tax professional like Tax Accounting Australia. To handle your tax returns and save you time and money in the long run. Get expert financial advice Perth for personalized solutions.

Bottom Line

To sum it up, claiming financial advice on your tax return isn’t a straightforward yes or no. It depends on factors like

• The nature of expenses.
• The regulatory framework.
• The advice’s impact on your income.

For a great tax season, take a closer look at your financial advice cost. Make sure they align with the guidelines set by tax authorities.

Understanding this guide ensures you make the most of your tax return without any surprises.

Additionally, there is no such thing as free financial advice. Even if you search for options like ‘free financial advice near me’ or ‘free financial advice Australia.’ So, better to hire licensed tax agents.

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