Under TR 2024/2, financial advice fees may be deductible under section 8-1 (producing assessable income) or section 25-5 (tax expenditure to a TPB-recognised adviser). Ongoing investment management and tax advice fees are typically deductible; initial structural advice fees are capital and not deductible. Where a fee covers mixed activities, apportionment of the deductible portion is required.
For Australian retirees and pre-retirees paying financial advice fees — typically several thousand dollars annually for ongoing advice — the tax deductibility of those fees is a meaningful question. The historical ATO position (TD 95/60) drew lines that hadn't been refreshed in over two decades and predated the modern fee-for-service advice model. Industry advocacy through the Financial Advice Association Australia (FAAA), accounting bodies, and other professional groups led to a refreshed ATO position. TR 2024/2 consolidates and updates the ATO's view on advice fee deductibility. The framework applies to most Australians paying for financial advice; understanding it helps retirees claim what's appropriate while avoiding aggressive positions that might attract ATO review.
The deductibility framework rests on two provisions of the Income Tax Assessment Act 1997. Section 8-1 — General deduction. A loss or outgoing is deductible to the extent it is incurred in gaining or producing assessable income, or is necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income. Capital, private, or domestic outgoings are not deductible. Section 25-5 — Tax-related expenditure. Costs of managing tax affairs, including fees paid to a "recognised tax adviser" — registered tax agent or registered tax (financial) adviser through the Tax Practitioners Board — are deductible. Most advice fees have potential nexus to one or both provisions; TR 2024/2 clarifies how to apply them.
What is deductible under the updated framework. Tax (financial) advice from a TPB-recognised adviser — providing tax-related strategy, advice on the tax consequences of financial products or strategies — is deductible under section 25-5. The recognition matters; advice from a non-recognised provider doesn't access this provision. Ongoing investment management fees — review, rebalancing, monitoring of income-producing investments — are typically deductible under section 8-1 as they are incurred in producing assessable investment income. Ongoing service fees with apportionment — where the ongoing service fee covers a mix of activities, the deductible portion is the share relating to deductible categories.
What is not deductible. Initial advice fees, including the cost of establishing the investment portfolio, structuring superannuation arrangements, and setting up the strategic foundation, are typically capital in nature. The new ruling continues this position — initial structural advice is not deductible. Private or domestic matter advice — estate planning, personal insurance for non-income-producing purposes, retirement lifestyle planning, family budgeting — is not deductible. Advice fees paid by the super fund (deducted from member balances) — the member doesn't personally pay the fee, so no personal deduction. The fund's tax treatment is separate, and where the fee is deducted from accumulation balance there are specific rules on whether the fund can claim the deduction in its own return.
The apportionment principle is central for ongoing advice fees that cover mixed activities. Where an annual ongoing service fee covers investment management (deductible), tax (financial) advice (deductible under s 25-5), some structural review (capital), and some estate planning discussion (private), the deductible portion needs to be reasonably apportioned. Common approaches are time-based (proportion of adviser time on deductible activities), subject-matter based (mapping fee categories to deductibility categories), or a reasonable estimate documented contemporaneously. The adviser is well placed to provide an apportionment view — typically as part of the annual fee disclosure statement or a specific tax-deductibility statement — which the client uses for their tax return.
A few practical scenarios illustrate the framework. Pre-retiree paying for contribution and salary sacrifice advice: the advice produces tax-related strategy (s 25-5 nexus) and supports producing assessable employment income (s 8-1 nexus). Likely substantial deductibility. Retiree with account-based pension drawing tax-free pension income: the pension income (after age 60) is tax-free; advice on tax-free income may have weaker section 8-1 nexus. Where the adviser also manages non-super investments producing assessable dividends or interest, that portion is deductible. Retiree with non-super investment portfolio producing dividends and interest: strong nexus to producing assessable investment income; ongoing portfolio management fees typically deductible. Estate planning advice: generally capital/private; typically not deductible. Annual review fee covering all of the above: apportionment required, with the adviser's fee disclosure supporting the apportionment.
Documentation supports the deduction. Retain the annual fee disclosure statement (with tax-deductibility breakdown where the adviser provides one), the advice documents received during the year (Statement of Advice and ongoing advice documents), bank or account records showing fee payment, and any specific tax-deductibility apportionment letter from the adviser. ATO review is unlikely to be aggressive but documentation supports the position taken.
A few common pitfalls to avoid. Claiming the full fee without apportionment where the fee covers mixed activities — risky if reviewed. Claiming initial structural advice fees — capital nature, not deductible despite being a substantial cost. Claiming fees deducted from super in the personal return — the member doesn't personally pay; no personal deduction. Not retaining substantiating documents — review without documentation is harder to defend. Confusing s 25-5 and s 8-1 — different scope, different evidentiary requirements.
For advisers and advice practices, TR 2024/2 supports clearer fee disclosure. Many practices now provide an annual tax statement showing the deductible portion of ongoing fees by category — investment management, tax (financial) advice, structural advice, private/estate matters. This supports clients' tax preparation and reduces the substantiation burden when claims are made. For clients, ask your adviser whether they provide such a breakdown; many do as standard.
The ruling does not change every advice fee dynamic. Initial structural advice remains capital — for pre-retirees engaging an adviser for the first time, the upfront cost typically isn't deductible. Estate planning remains private/capital — the fees aren't deductible as a tax matter (though may be supported by the estate funding mechanism). The shift TR 2024/2 supports is in clarifying ongoing advice fee deductibility with apportionment, recognising the modern fee-for-service model where advice covers investment management, tax strategy, and other elements in an integrated way.
For Australian retirees and pre-retirees paying ongoing advice fees, understanding the framework supports appropriate deduction claims. The amounts can be material — thousands of dollars annually with marginal rates that mean meaningful tax saving where deductible. Get the apportionment from your adviser, retain the documentation, claim what's appropriate, and where the position is uncertain, get a registered tax agent's view before the return is lodged. Tax rules reward clarity and documentation; this is a case in point.
Key takeaways
- TR 2024/2 updates the ATO's position on financial advice fee deductibility, replacing the outdated TD 95/60. Deductibility rests on two ITAA 1997 provisions: section 8-1 (losses or outgoings incurred in producing assessable income) and section 25-5 (cost of managing tax affairs, paid to a TPB-recognised adviser).
- Ongoing investment management fees — review, rebalancing, monitoring of income-producing investments — are typically deductible under section 8-1. Tax (financial) advice fees paid to a TPB-recognised adviser are deductible under section 25-5. Both require nexus to producing assessable income or to managing tax affairs.
- Initial advice fees are capital in nature and not deductible — this includes the cost of establishing an investment portfolio, structuring superannuation, and setting up the strategic foundation. Advice fees deducted from a super fund balance are not claimable in the member's personal tax return.
- Where an ongoing service fee covers both deductible and non-deductible activities — investment management (deductible), tax advice (deductible), structural review (capital), estate planning (private) — apportionment is required. Advisers can provide a tax-deductibility breakdown in the annual fee disclosure statement to support the client's return.
- Documentation supports the deduction: retain the annual fee disclosure statement (including any tax-deductibility breakdown), advice documents received during the year, and bank records confirming fee payment. A registered tax agent should review any uncertain deductibility positions before lodgement.
Frequently asked questions
Are ongoing financial advice fees tax deductible in Australia?
Ongoing investment management fees are typically deductible under section 8-1 of the Income Tax Assessment Act 1997, as they are incurred in producing assessable investment income. Tax (financial) advice fees paid to a TPB-recognised adviser — a registered tax agent or registered tax financial adviser — are deductible under section 25-5. Where an ongoing service fee covers both deductible and non-deductible activities, the deductible portion must be apportioned.
Are initial financial advice fees tax deductible?
No. Initial advice fees — the cost of establishing an investment portfolio, structuring superannuation arrangements, and setting the strategic foundation — are capital in nature and not deductible under either section 8-1 or section 25-5. TR 2024/2 continues the longstanding position that initial structural advice is capital expenditure. Only ongoing fees with nexus to producing assessable income or managing tax affairs are deductible.
What is section 25-5 and how does it apply to financial advice fees?
Section 25-5 of the Income Tax Assessment Act 1997 allows deduction of the cost of managing tax affairs, including fees paid to a 'recognised tax adviser' — a registered tax agent or registered tax financial adviser through the Tax Practitioners Board. For financial advice, this provision covers tax-related strategy and advice on the tax consequences of financial products or strategies, provided the adviser holds TPB recognition. Advice from a non-registered provider does not access this provision.
What documentation should I keep to support a financial advice fee deduction?
Retain the annual fee disclosure statement (particularly if the adviser provides a tax-deductibility breakdown by category), Statements of Advice and ongoing advice documents received during the year, and bank or account records confirming fee payment. Where the adviser provides an apportionment letter splitting the fee between deductible and non-deductible activities, this is the most useful substantiation. Where the deductibility position is uncertain, a registered tax agent's view before lodgement is worth seeking.