It’s tax time again and with it are the usual voices calling for financial advice to become tax deductible. Trouble is, isn't it already? The adviser just needs to link the advice to earning and protecting an income.
This might not cover all advice but it should cover a significant portion of it, even down to choosing a super fund for an employee’s workplace super. All the adviser has to do to enter this new world of deductibility is structure their client invoices along these lines and the Tax Pack should take care of the rest in the same way it handles all other professional service payments.
The strange thing about this discussion, however, is that anyone conversant with the rudiments of income tax and claiming deductions would know this already. This must point to the bigger question of why this is such a problem for the advice profession in Australia as I don’t recall lawyers or stockbrokers getting steamed up about this.
The advice industry is getting so tangled over deductibility because something much bigger is in play, and that is we don’t just want tax deductibility; we want a free kick – a free kick denied to almost all other professional services.
The only reason we could want this is because we either see a huge prize or we are fearful that without it we are in trouble.
The prize is easy to pick because straight away we would see the prices we charge to our clients rising as we started striking them in post-tax terms and the pre-tax fee lift would become a welcome windfall.
You don’t need to be Machiavelli to know this argument isn’t going to fly too high.
Another problem is that those wanting this unconditional tax deductibility haven’t thought through its implications.
Tax deductibility can only apply to payments made by consumers for services received, not by payments from product manufacturers to their distributors. Commission payments would, in all likelihood, not be eligible – unless we want to set a huge precedent that would put us on a collision course with just about every Treasury, ATO official and member of executive government worried about the national fiscal bottomline.
The good news is that the switch to fee for service means advisers will be able to tailor their servicing and invoicing, and so pleas for tax deductibility will become in the most part redundant. Indeed, a great many advisers are probably already doing it.
But the bad news, at least for advisers who want a revenue kick without having to do the hard yards in changing their business practices, is tax deductibility will, and should, remain an elusive dream.
