Financial planning is a strategic approach to determining current and future income and goals, devising a plan that seeks to make objectives to attain better and more reachable goals in the future. For business, it entails micromanaging every aspect of the organization like workforce training, marketing, payrolls, concrete plans, and even research and development to achieve such targets.
With this, financial advisors are there to help you with ledgers, to be able to know in what aspect your business must change or develop. They also help you manage your workforce and finances, in a way that will be in line with how you want to foresee your business in the years to come. Nevertheless, financial advisers are there to guide businesses, improving the map to attain the long-term and short-term goals for a company. Yet, they aren’t for free; they also require fees and how much it costs depends on how big and complex your goals are.
Consequently, businesses with financial planners may be wondering if the fees are tax-deductible. However, it may or may not be.
The Australian Taxation Office (ATO) governs what tax must be paid and added to individuals and institutions. They mainly collect revenue, administer tax and services, transfer the benefits to the community, and also the custodian of the Australian Business Register. Hence, they make rules and regulations regarding tax deliverables and deductibles, ensuring that you can have a refund for your business when you have added expenses.
In line with tax determination, income tax for obtaining business advice has an allowable deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997).
As such, it is to note that if you have a business, deductible taxes shall be imposed only if the expenditure is incurred in the course of gaining and producing income for a business. To make it simpler, let’s have a concrete example:
You pay a fee when you tap in a financial planning advisor. Yet, they do not only make a plan but also manage processes to help you run through the course of execution. With this, you’ll be able to pay management fees and retainer fees, in a way that financial planners will guide you to gain income and thus maximize your expenditures.
Hence, when the first course of action is just making a plan, it does not mean that you’re executing it and having income by solely making the plan. The first action does not generate income yet, in a way that it’s just the advice and it does not entail any specific evidence that you are actually gaining from it. Therefore, the fees for making a plan are not tax-deductible as for ATO.
However, when you already pay for management and retainer fees, it means that you are gradually making progress and income out of it. The execution of the plan and maintenance entails that the expenditure is made along the process of gaining out of the plan. Henceforth, it is subject to a tax deduction, in a way that the expenditure is made in the course of potentially gaining or losing profits with plan execution.
Ultimately, the planning is not tax-deductible yet while the payment done during the execution of the plan is tax-deductible under section 8-1 of the Income Tax Assesment Act of 1997, as the replacement provision for subsection 51(1). While tax deductions might be confusing, it is deemed necessary to know what ATO connotes with such, to know when you must be able to sort out deductions.
Photo by Mikhail Nilov