The Financial Advice Association of Australia (FAAA) has backed Australian Taxation Office (ATO) draft determinations clarifying rules around tax deductibility of fees, including for life insurance advice. 

FAAA CEO Sarah Abood says the revised guidance is “sensible” as the existing determination is almost 30 years old, and a substantial amount of regulatory change has occurred since 1995. 

In addition, financial advisers are now recognised as Qualified Tax Relevant Providers (QTRPs), and are regularly providing tax advice to clients. 

“This draft revised guidance clearly states that upfront fees are deductible to the extent that they relate to tax advice, and there is far greater clarity on the deductibility of ongoing fees,” Ms Abood said. 

“It’s pleasing to see that the ATO has included some real-world examples, including ones that we had suggested.” 

The ATO draft determination sets out when an individual may be entitled to a deduction under sections 8-1 or 25-5 of the Income Tax Assessment Act 1997 for fees paid for financial advice. It outlines the requirements that need to be satisfied for an individual to claim a deduction for financial advice fees. 

One of the examples in the draft determination relates to advice for insurance policies, where a client was advised to apply for a number of policies provided by an insurance company and that these policies should be held outside of the superannuation system. 

The draft determination says the client will be able to claim a deduction for the advice as it relates to the taxation implications of the insurance policies he has chosen to take out.  

The ATO draft determination is open for feedback until February 2. 

Click here for the draft determination.