Financial planners advising on taxation is currently a grey area and, in summary, most financial planners are currently not qualified to advise on taxation unless they are solicitors or registered tax agents. The position is changing so that financial planners can advise on taxation, within the context of their financial plans, provided they complete further training in taxation.
If you provide personal advice as a financial planner under an ASFL that interprets and applies tax laws you will be providing tax (financial) advice and will need to comply with the relevant rules.
In June 2013, new legislation (Tax Laws Amendment (2013 Measures No. 3) Act 2013) amending the Tax Agent Services Act 2009 (TASA) and regulating the provision of tax advice by financial advisers was announced. These amendments to the TASA aimed to ensure all forms of tax advice are consistently regulated and provide consumers with appropriate protections when receiving tax advice from a financial adviser. The new legislation commenced operation on 1/07/2014 with a three-year transitional period before commencing in full on 1/07/2017. The Tax Practitioners Board (TPB) became responsible for the regulation of tax (financial) advisers while ASIC continues to regulate all other aspects of financial planning. Financial advisers providing tax advice can register with the Tax Practitioners Board (TPB) under TASA. You can find examples of tax (financial) advice services here.
Financial advisers providing tax advice must comply with the new requirements under the TASA, which will supplement their existing skills and competencies, to cover tax advice. Three key documents produced by the TPB with important information important information for tax (financial) advisers are:
- What is a tax (financial) advice service?
- Proposed professional indemnity insurance policy requirements for tax (financial) advisers
- Proposed continuing professional education requirements for tax (financial) advisers
On 25 June 2014, Treasury released its proposed registration requirements for tax (financial) advisers for consultation.
Definition of a tax (financial) advice service
Put simply, there are five key elements making up a tax (financial) advice service:
- tax agent service (excluding representations to the Commissioner of Taxation);
- provided by an Australian financial services (AFS) licensee or representative of an AFS licensee;
- provided in the course of advice usually given by an AFS licensee or representative;
- relates to ascertaining or advising about liabilities, obligations or entitlements that arise, or could arise, under a taxation law; and
- reasonably expected to be relied upon by the client for tax purposes.
The Financial Planning Association of Australia has provided the following flow chart to determine if you are providing tax (financial) advice:
The TASA regime allows for financial planners with different qualifications and experience to register with the TPB. From 1 January 2016 financial planners will be required to meet the qualifications and experience requirements to register as a tax (financial) adviser. The Standard eligibility requirements can be found at the TPB website here: Registering as a tax (financial) adviser – standard option.
Notification phase – 1/7/14 – 31/12/15
From 1 July 2014 until 31 December 2015, financial planners need only notify the TPB that they are a financial services licensee or a representative of a licensee; and provide tax (financial) advice services. Once registered, financial planners must comply with the TPB Code of Professional Conduct. Those who register with the TPB during this phase do not need to meet the additional education and experience requirements until their registration expires.
|If an entity notifies the Board during…||the entity’s registration expires on…|
|1||July, August, September, October, November or December 2014||31 January 2018|
|2||January, February, March, April, May or June 2015||31 October 2017|
|3||July, August, September, October or December 2015||31 July 2017|
|Source: FPA http://fpa.asn.au/policy/tax-agent-services/register-with-tpb/|
Transitional phase – 1/1/16 – 30/6/17
From 1 January 2016, all new and existing financial planners must be registered. Financial planners who are not registered and provide tax advice after 1 January 2016 will be in breach of the law and face penalties. Financial planners who register after 1 January 2016, will be required to meet TPB education and experience requirements to provide tax advice. The Treasury and the Tax Practitioners Board are currently consulting on education and experience requirements for financial planners. These requirements will be set in the Regulations.
Tax advice disclaimers
Many financial advisers who are not authorised to give taxation advice still consider taxation implications of their recommendations in their statements of advice and include a disclaimer for the client to confirm their tax liabilities with a registered tax agent.
The TASA legislation allows financial planners to use a tax disclaimer up until 31 December 2015. The disclaimer must state the following:
- the provider of the advice is not a registered tax (financial) adviser under the Tax Agent Services Act 2009;
- if the receiver of the advice intends to rely on the advice to satisfy liabilities or obligations or claim entitlements that arise, or could arise, under a taxation law, the receiver should request advice from a registered tax agent or a registered tax (financial) adviser.
After 31 December 2015 financial planners who are not registered to give tax (financial) advice will not be able to provide any form of tax advice, and cannot use a disclaimer. If you are caught providing tax advice without authority, you may be liable for civil penalties, even if a disclaimer is provided.
For further information, refer to subsection 49(4) of the Tax Laws Amendment (2013 Measures No. 3) Act 2013.
How does Dover assist with respect to tax advice?
A client may be able to take legal action if their financial planner has not properly considered the implications of taxation. Most financial planners are not qualified or trained to provide tax advice. Yet tax advice is a critical aspect of an effective SOA. Only solicitors or registered tax agents can provide tax advice, and only tax (financial) advisers can provide tax (financial) advice. If the financial planner is not qualified to provide tax advice they will need to refer the client to someone else who can provide tax advice.
Dover is a registered tax agent and is regularly involved in client tax advice. Here’s how it works:
- the Adviser contacts Dover to discuss a client’s tax profile and to identify ways of improving it;
- a tax advice strategy is sketched out;
- a draft SOA is prepared, with a special section called “Tax Advice” penned by Dover and stating that Dover is responsible for the tax advice component of the SOA; and
- Dover checks and approves of the SOA’s tax contents before it is provided to the client.
The Adviser wins because the advice is of a higher quality and the client wins because they do not have to source separate advice from a third party to know their tax profile is optimal.