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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of private advice

Authorisation Number: 1012623655394

Ruling

Subject: Expenses - Investment

Questions

1. Are you entitled to a deduction for receiving investment advice, such as timing of superannuation contributions, establishment of a Self Managed Super Fund (SMSF) and transferring investments into a SMSF?

Answer: No.

2. Are you entitled to a deduction for receiving tax advice, such as such as reviewing your FBT exemption threshold and income protection insurance?

Answer: No.

This ruling applies for the following periods:

Year ended 30 June 2013

Year ending 30 June 2014

The scheme commences on:

01 July 2012

Relevant facts and circumstances

Acting on advice from your accountant, you met with a financial planner to have your financial affairs reviewed.

You had an investment portfolio already in place.

You received advice and incurred an advice fee and several months later incurred an implementation fee.

The statement of advice covered off on many matters including capital investments, however, many matters with tax consequences were discussed, advised upon and implemented.

The tax related matters included:

The financial planner you met with is not a registered tax agent with the Tax Practitioners Board, or a legal practitioner.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1,

Income Tax Assessment Act 1997 Section 25-5 and

Income Tax Assessment Act 1997 Section 995-1.

Reasons for decision

Investment Advice

Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature.  

Fees paid for obtaining financial advice are ordinarily deductible under section 8-1 of the ITAA 1997 when incurred in servicing an existing investment portfolio. However, to be wholly deductible, all of the fee must relate to gaining or producing of your assessable income. If the advice covers other matters or other entities or relates in part to investments that do not produce assessable income, only a portion of the fee is deductible. Similarly, if the fee is an initial fee for setting up the investment or financial plan, the cost would be considered to be a capital expense and not deductible.

Taxation Determination TD 95/60 gives the Commissioner's views on when the provision of investment advice is deductible under section 8-1 of the ITAA 1997.

Paragraphs 3 and 4 of TD 95/60 explain that the fee for drawing up the plan is not deductible for income tax purposes. It is not expenditure incurred in the course of gaining or producing the assessable income from the investments. It is too early in time to be an expense that is part of the income producing process. It is an expense that is associated with putting the income earning investments in place and therefore has an insufficient connection with earning income from the investments.

Expenditure on drawing up the plan is incidental and relevant to outlaying the price of acquiring the investments and is associated with the making of the investments as to warrant the conclusion that it is capital or capital in nature.

Paragraph 7 of TD 95/60 also states that where a taxpayer has existing investments and goes to an investment advisor to draw up an investment plan, the fee paid would be a capital outlay even if some or all of the pre-existing investments were maintained as part of the plan. The character of the outgoing is not altered because the existing investments fit in with the plan. It is still an outgoing of a capital nature for the same reasons as set out in paragraphs 3 and 4 above.

In your case, the advice you received in regards to the timing of superannuation contributions and transferring personal investments into a SMSF is not considered deductible as the expense is not incurred in earning income from your investment. Rather, the expense is associated with putting the new investment plan in place. The expense is considered capital in nature and is not an allowable deduction.

Setting up a SMSF

ATO Interpretative Decision ATO ID 2004/139 also discusses the deductibility of investment advisors fees. In this case the taxpayer paid a financial advisor a fee for setting up an SMSF and for drawing up a plan for their other investments.

It states that the fee for setting up the SMSF and the drawing up the investment plan occurs too early to be an expense that is part of the income producing process and is not deductible as it is capital or capital in nature, as per TD 95/60.

Therefore, the advice you received in regards to the establishment of an SMSF is considered capital in nature and is not an allowable deduction.

Tax advice

Section 25-5 of the ITAA 1997 provides that certain tax related expenses are deductible. Paragraph 25-5(1)(a) of the ITAA 1997 provides that a taxpayer can deduct expenditure they incur to the extent that the expenditure is for managing tax affairs. 

Section 25-5 of the ITAA 1997 does not specify what constitutes managing tax affairs. Section 995-1 of the ITAA 1997 defines 'tax affairs' as affairs relating to tax.

Fees or commissions paid for professional advice on income tax matters are deductible under section 25-5 of the ITAA 1997 only if the advice is provided by a recognised tax adviser. A recognised tax adviser is defined in section 995-1 of the ITAA 1997 as a registered tax agent or BAS agent, or a legal practitioner.

The advice you received in regards to your FBT exemption thresholds and income protection insurance is considered to be tax advice and not investment advice, therefore must meet the criteria of section 25-5 of the ITAA 1997 to be an allowable deduction.

In your case, your financial advisor is not a recognised tax adviser, therefore the costs incurred for the advice is not an allowable deduction.

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