Understanding Financial Advice Fee Deductions: New ATO Guidance 

As we dive into the new financial year, many of us are turning our attention to tax returns, super contributions, and investment summaries. But amid the usual paperwork, one area that often causes confusion is whether the fees paid for financial advice can be claimed as a tax deduction.

Thanks to a recent update from the Australian Taxation Office (ATO), there’s now greater clarity on this issue. The new guidance, outlined in Tax Determination TD 2024/7, provides a framework for when and how financial advice fees may be deductible. However, the rules are nuanced—and understanding them could mean the difference between a legitimate deduction and a costly mistake.

A Shift in Tax Guidance

The ATO’s latest determination replaces the long-standing TD 95/60 and reflects the evolving nature of financial advice in Australia. Under the new rules, individuals may be able to claim deductions for advice fees, but only if the advice is directly related to managing their tax affairs or generating assessable income.

The relevant legislation comes from the Income Tax Assessment Act 1997, specifically:

• Section 8-1, which allows deductions for expenses incurred in producing assessable income.
• Section 25-5, which permits deductions for costs associated with managing tax affairs.

Importantly, TD 2024/7 applies to advice received both before and after September 2024, offering retrospective opportunities for some taxpayers.

Not All Advice Is Created Equal

Financial advice can cover a wide range of topics—from retirement planning and insurance to investment strategies and tax structuring. But not all of it qualifies for a deduction.

Initial Advice Fees

These are typically incurred when you first engage a financial adviser. According to the ATO, such fees are generally not deductible under Section 8-1, as they are considered capital in nature. However, if the initial advice includes guidance on managing your tax affairs—and is provided by a Qualified Tax Relevant Provider (QTRP)—then a portion may be deductible under Section 25-5.

Ongoing Advice Fees

These are more likely to be deductible, particularly if they relate to:

• Ongoing tax planning
• Investment income strategies
• Superannuation contributions
• Income protection insurance

In these cases, the fees may fall under either Section 8-1 or 25-5, depending on the nature of the advice.

Real-World Examples of Deductible Advice

To help taxpayers understand what might qualify, the ATO has provided examples of deductible advice, including:

• Structuring salary sacrifice arrangements into superannuation
• Planning for capital gains tax (CGT) events
• Setting up and maintaining a self-managed super fund (SMSF), if the fees are paid personally
• Advice on income protection insurance premiums
• Investment structuring for tax efficiency

These examples highlight the importance of the advice being directly linked to income generation or tax management.

How to Work Out What You Can Claim

Because financial advice often spans multiple topics—some deductible, some not—the ATO requires that fees be apportioned. This means breaking down the total fee to isolate the deductible portion.

There are several accepted methods for doing this:

• Activity Basis: Based on the time spent on deductible versus non-deductible advice.
• Strategy Basis: Based on the nature and purpose of the strategies recommended.
• Insurance Premium Basis: Based on the proportion of deductible insurance premiums included in the advice.

Your financial adviser should be able to provide documentation that supports the chosen method of apportionment.

Documentation Is Key

To claim a deduction, you’ll need to keep detailed records. This includes:

• An invoice or fee summary
• A Statement of Advice (SoA) or Record of Advice (RoA)
• Evidence that the advice was provided by a Qualified Tax Relevant Provider and relates to tax affairs or assessable income

These documents should be retained for at least five years, in case the ATO requests verification.

What to Ask Your Accountant or Adviser

Before lodging your return, it’s worth having a conversation with your accountant or financial adviser. Consider asking:

• Which parts of my financial advice are tax-deductible?
• Was the advice provided by a Qualified Tax Relevant Provider?
• What method was used to apportion the advice fee?
• Can you provide supporting documentation?
• Should I amend previous tax returns to reflect the new guidance?

These questions can help ensure you’re claiming the correct amount—and staying compliant with ATO expectations.

While the ATO’s updated guidance offers more clarity, it also introduces complexity. Not all advice fees are deductible, and the rules around apportionment and documentation require careful attention.

For many Australians, the best approach is to work closely with both a financial adviser and a tax professional. Together, they can help you navigate the new rules, maximise your deductions, and avoid any red flags that might trigger an audit.

If you’re unsure about your eligibility or need help preparing the right paperwork, now is the perfect time to seek professional advice.