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Edited version of your written advice
Authorisation Number: 1013005548648
Date of advice: 29 April 2016
Ruling
Subject: Deductibility of investment adviser's fees
Question
Are you entitled to a deduction for the annual fee associated with ongoing financial advice?
Answer
Yes.
This ruling applies for the following period
Year ended 30 June 2015
The scheme commenced on
1 July 2014
Relevant facts
You received ongoing advice from a financial planner from an Australian Bank in relation to investments from which you derive assessable income.
You have paid an annual fee of $X for the 20XX financial year relating to the ongoing service and advice.
The payment of the ongoing advice relates to a review of your investment portfolio consisting of:
• Investment fundamentals which includes cash, Australian shares and property securities
• Shares
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 8-1
Reasons for decision
Section 8-1 of the Income Tax Assessment Act 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing your assessable income. However, a deduction is not allowed where the loss or outgoing is of a capital, private or domestic nature or incurred in relation to gaining exempt income.
To determine whether a deduction is allowable for financial advice, the nature of the expense must be considered. The nature or character of the financial advice fees follows the advantage which is sought to be gained by incurring the expense. If the advantage to be gained is of a capital nature then the expense incurred in gaining the advantage will also be of a capital nature. Also if the expenses incurred relate to a separate entity, then no deduction is allowable.
Ongoing management fees or retainers are deductible under section 8-1 of the ITAA97. In Taxation Ruling IT 39 discusses the decision in F C of T v Green (1950) 81 CLR 313 which allowed a taxpayer a deduction in relation to the management of the income producing enterprises of the taxpayer. The Ruling concluded that expenditure in "servicing" the portfolio should be regarded as incurred in relation to the management of income producing investments and thus as having an intrinsically revenue character. To be wholly deductible all of a management fee must relate to gaining or producing assessable income.
In your case you have advised that the annual fee was wholly incurred in gaining or producing assessable income. This fee is considered to be incurred to manage your investment portfolio. Therefore, you are entitled to a deduction under section 8-1 of the ITAA 1997.