ATO backs planners in tax advice tug-of-war

By Rebecca Evans

The Australian Taxation Office (ATO) in consultation with the Australian Securities and Investments Commission (ASIC) is unlikely not to regulate ‘incidental’ tax advice given by financial planners, after releasing a draft taxation determination investigating the current provisions of the Income Tax Assessment Act.

However, the law does not prevent a person in a non-representational capacity from giving tax advice that is part of, or incidental to, another service. The ATO considers a non-representational capacity to be that where tax advice is secondary to the core duties of the service provider, such as a financial planner.

Taxpayers Australia’s national director Peter McDonald says the clarification of paragraph 251l(1)(b) is another example of an industry carve out where the spirit of the Financial Services Reform Act (FSRA) is ignored.

“I’m not convinced that tax advice is incidental, it forms an intrinsic part of the (financial planning) process,” McDonald says.

“There’s something horribly wrong with a system where you can have tax advice that is basically unregulated,” he says.

Financial Planning Association (FPA) acting policy manager Joan Simpson agrees that tax advice is an integral part of financial planning, but strongly disagrees that this gives planners a licence to advise without consequences.

“Financial planners are not only able to give that advice, but are held accountable under the FSRA. There are both civil and criminal penalties that may apply in relation to the work they do,” Simpson says.

She says planners are expected to offer holistic advice, and it is absurd to suggest broad tax advice is not a part of their role.

“A client who sees a financial planner hasn’t come primarily for tax advice, but regardless, the financial planner must consider taxation implications,” Simpson says.

The ATO determination reports that under existing law, persons other than registered tax agents are prohibited from charging a fee for “giving advice about a taxation law on behalf of a taxpayer”.

Section 251l(b) was originally enacted to provide an assurance to both the taxpayer and the ATO that a person authorised to act on behalf of the taxpayer is reputable and competent in income tax matters.